A Better ETS for Forestry

Proposed amendments to the

Climate Change Response Act 2002

Te Uru Rākau Discussion Paper No: 2018/02

Publisher

Te Uru Rākau
PO Box 2526, Wellington, 6140
New Zealand
0800 00 83 33
www.mpi.govt.nz
Te Uru Rākau Discussion paper 2018/02
ISSN No: 2624-0440 (online)
ISBN No: 978-1-77665-895-4 (online)
© Crown Copyright – Te Uru Rākau, August 2018

Disclaimer
While every effort has been made to ensure the information is accurate, the Te Uru Rākau does not accept any responsibility
or liability for error of fact, omission, interpretation or opinion that may be present, nor for the consequences of any decisions
based on this information. Any view or opinion expressed does not necessarily represent the view of the Te Uru Rākau.
Contents
1.MINISTER’S FOREWORD 3

2. SETTING THE SCENE AND SUMMARY 4

About the Emissions Trading Scheme (ETS) 4
How the ETS works 4
Purpose of this ETS consultation 4
How we got here 5
The role of forestry in the ETS 5
Riparian planting in the ETS 6
Linkage to the wider ETS review work 6
Summary of proposals 6

3. SIMPLIFIED ACCOUNTING APPROACH FOR THE ETS 9

How the ETS accounting approach works now 9
What challenges does the current accounting approach present? 10
How the proposed new averaging accounting approach works 10
What are the benefits of changing to an averaging
accounting approach? 10
Options for introducing averaging accounting for newly
planted forests 11
Options for accounting for existing forests 12
Transition considerations for a move to averaging accounting 15
Detailed design questions for averaging accounting 16

4. COMPLEMENTARY PROPOSALS TO THE INTRODUCTION

OF AVERAGING 23

5. RECOGNISING THE EMISSIONS MITIGATION FROM HARVESTED

WOOD PRODUCTS 27

6. CREATING A PERMANENT FORESTS CATEGORY IN THE ETS 29

Detailed design questions for introducing a permanent forest
category in the ETS 32

7. OPERATIONAL IMPROVEMENTS TO THE ETS 40

Significant operational changes 40
Operational changes influenced by averaging 46
Minor and technical proposals 48

9. WHAT HAPPENS NEXT? 55

Have your say 55
Submissions are public information 55
Where to find further information 55

10. GLOSSARY OF TERMS 56

ETS Forestry Consultation 1

2 Te Uru Rākau
1. Minister’s Foreword
New Zealand, and the world, needs more trees. The One Billion Trees Programme will
help us to achieve our climate change goals, improve the quality of our environment and
support economic development across the country. We want the right trees, in the right
place, for the right purpose, and we want New Zealanders engaged in this process.

The Government knows that a strong and successful forestry sector will create jobs, lift
productivity and incomes, and help diversify land use across the country whilst continuing
to make a strong contribution to our environmental objectives.

We are committed to New Zealand becoming a global leader in climate change action.

Forestry is one of New Zealand’s largest and most cost-effective carbon reduction
options, and planting trees remains one of the most effective means of drawing carbon
dioxide from the atmosphere.

A hectare of trees absorbs enough carbon dioxide over one year to equal the amount produced by driving a car
over 80,000 kilometres. We need to encourage everyone, from city dwellers to farmers and foresters, to plant
more trees.

The New Zealand Emissions Trading Scheme (ETS) is our key tool to help us achieve our climate targets. The
ETS works to address climate change by incentivising the reduction of greenhouse gas emissions. It puts a price
on greenhouse gas emissions from most sectors of the New Zealand economy, encouraging investment in lower
emissions technologies and practices, including forestry as a carbon sink.

In 2017, a review of the ETS found the scheme could be more effective in supporting forestry participants and
encouraging new forests to be planted. The carbon accounting approach for forests is challenging for many
forestry participants. This issue, combined with the complex operating system, are barriers preventing people
from entering the scheme.

This discussion document contains a range of proposals to help overcome these challenges and take another
step towards making investment and participation in forestry easier and more profitable. They aim to ensure
that the ETS can better support New Zealand to meet our targets.

We want to encourage farmers, Māori and other land owners to see the benefit of ETS participation in helping
them plant and grow even more forest.

I believe that with these improvements we can work towards supporting and promoting a flourishing forestry
sector, delivering sustainable jobs in our regions and encouraging economic growth while helping meet our
country’s climate change targets.

To make sure we get this right, we want to hear a wide range of views on these proposals from all stakeholders
across the forestry sector including farmers, Māori land owners, investors, wood processors, as well as the
general public. We invite you to be part of this conversation.

Hon Shane Jones

Minister of Forestry

ETS Forestry Consultation 3

2. Setting the Scene and Summary
ABOUT THE EMISSIONS TRADING SCHEME
Introduced in 2008, the New Zealand Emissions Trading
Scheme (ETS) is New Zealand’s key climate change policy
tool to reduce greenhouse gas emissions. The scheme
aims to help New Zealand to meet its emission reduction
targets by driving reductions in emissions below “business
as usual” levels.
One of the main reasons the ETS was introduced was
to help New Zealand to meet our climate change
commitments under the Kyoto Protocol, and support
global efforts to reduce greenhouse gas emissions1.
HOW THE ETS WORKS
Emissions pricing is a key tool for achieving emissions
reductions because it encourages businesses to take
the cost of their emissions into account when making
investment decisions. This encourages investment in
lower emissions technologies and practices, including
forestry.
In New Zealand, we price emissions through the ETS. The
ETS requires all sectors of New Zealand’s economy to
report their emissions and, if needed, buy emissions units
that they can surrender to the government to cover their
emissions.
The scheme puts a price on emissions by creating
obligations and options to buy and sell New Zealand Units
(NZUs). This means that emitters must either reduce
their emissions or buy emission units from others – e.g.
from foresters who have earned units for removing
emissions. The price of emission units depends on the
1 Section 3 of the Climate Change Response Act 2002
Figure 1: How the ETS works
4 Te Uru Rākau
supply and demand for units. This is underpinned by the
cost of actions to reduce emissions, and the strength of
New Zealand’s targets to reduce emissions.
The scheme encourages forest planting by allowing
eligible foresters to earn NZUs as their trees grow and
absorb carbon dioxide. Each emissions unit represents
one tonne of carbon dioxide equivalent of greenhouse gas
emissions (CO2 equivalent). Currently, the only eligible
emissions units in the ETS are the NZU, and New Zealand
originated Assigned Amount Units (AAU).
PURPOSE OF THIS ETS CONSULTATION
We are consulting on these changes because we want to
simplify the way the ETS works for forestry participants,
increase afforestation and enable more flexibility in the
scheme rules to support the right trees being planted, in
the right place, for the right purpose. We have identified
a number of opportunities to improve the ETS settings
for forestry participants so that the scheme better
incentivises new forests to be planted in New Zealand.
We estimate that the changes to post-1989 accounting we
propose in this consultation document could lead to 170
million more trees2 being planted over the next 10 years
(at current carbon prices), on top of the 170 million we
expect the ETS to encourage.
We propose to introduce changes to the ETS that will
encourage increased carbon storage across a range of
2 These trees will contribute significant emissions abatement for achieving
the 2030 target. Shortfall is estimated to be 193 million tonnes of CO2
and forestry (if the new accounting approach is introduced) is estimated
to contribute around 14-17 percent (between 27-32 million tonnes of CO2
depending on whether an allowance for HWP mitigation is included in the new
ETS accounting approach).
different forest types, including permanent and indigenous
forests. Recent reports from the Productivity Commission
and GLOBE New Zealand, consistent with modelling for
the Zero Carbon Bill3, have clearly identified that the
most important source of domestic emissions mitigation
in New Zealand is afforestation. The transition pathways
identified in these reports rely on a significant amount of
new forest being planted over the next 30 years.
Encouraging New Zealanders to plant more trees will
help us achieve key Government objectives, including
transitioning to a net zero emissions economy, improved
environmental outcomes such as water quality and
erosion control, regional economic development, and the
Government’s target to see one billion trees planted over
10 years.
We want to hear from a range of people, including current
ETS forestry participants, farmers, land owners, wood
processors, investors and manufacturers, and iwi/Māori
with forestry interests, along with other interested parties
on these proposals.
HOW WE GOT HERE
A review of the ETS was completed in mid-2017. This
review looked at how to improve the overall settings of
the ETS so it could best support New Zealand to meet its
future climate change targets.
This review identified some key issues with the overall
ETS, including its forestry rules, and indicated a range
of potential improvements. The review found that the
Government did not have the tools to align the ETS
with New Zealand’s climate change targets and drive
emissions reductions in line with these targets. A package
of wider changes to improve and strengthen the overall
framework of the ETS is also being consulted on.
Problems specifically associated with the forestry settings
include the complexity of the scheme and the liabilities
forestry face when they harvest. Following the review,
Cabinet noted that officials would prepare a package
of proposals for improving the forestry aspects of the
ETS. One of the options to be explored was introducing
a change to the accounting approach to enable forestry
participants to gain greater benefits from the carbon stock
held in their forests over the long term.
THE ROLE OF FORESTRY IN THE ETS
Forestry is a unique sector in the ETS as it is the only
sector that can remove emissions from the atmosphere
and get recognition for this through the ETS. By putting
a price on greenhouse gases, the ETS encourages land
owners to establish and manage forests in a way that
increases carbon storage. Anyone who owns or has rights
to forest land may be able to earn carbon credits (units)
through the ETS.
3 Modelling undertaken by Concept, Vivid, Motu and NZIER.
The ETS also disincentivises deforestation. When
deforestation occurs it counts as emissions of carbon.
This means that participants are required to surrender
units for converting forest land to other land uses.
The difference between post-1989 and
pre-1990 forests
This division in the way New Zealand accounts for forest
carbon was established under the Kyoto Protocol. The
carbon stored in forests planted before 1990 is already
accounted for in our national accounts as a baseline
carbon storage level for New Zealand.
If an area of land was in forest on 31 December 1989,
it is termed “pre-1990 forest land”. This land is not
eligible to earn units but must be registered in the ETS
if it is deforested. Owners of this land must pay units for
deforestation emissions. However, pre-1990 forests can
be harvested and replanted without needing to surrender
units.
If an area of land has become forest, either through
regeneration or planting, after 31 December 1989, it is
termed “post-1989 forest land” and can be registered
in the ETS on a voluntary basis. Participants registering
eligible post-1989 land in the scheme are entitled to
receive NZUs for increases in carbon stocks and must pay
units for decreases. Owners of post-1989 forests are also
required to repay units for all deforestation. However, as
participation is voluntary for post-89 forests, participants
cannot be liable for more units than they have earned.
How participants with post-1989 forests earn
units in the ETS
Owners of post-1989 forest land earn units as their
forests grow, and they have to repay a large proportion of
the units they have earned upon harvest. This payment
of units reflects the carbon lost from the forest when
the trees are cut down and removed. When the forest is
replanted the cycle of earning and repaying units begins
again, and foresters have to be prepared to repay units
every time their forest is harvested. Currently the ETS
requires these participants to account in the same way for
reductions in carbon stock associated with adverse events
such as storms and earthquakes (repaying units as though
the forest had been harvested). A balance of units that
represents the carbon lost from fallen or damaged trees is
owed following an adverse event. Some participants have
insurance to manage this liability.
ETS Forestry Consultation 5
Current forestry behaviour under the ETS –
afforestation rates are low
Since 2000 there has been very little establishment of new
areas of commercial forests, and some areas that have
been in commercial forests have been changed to other
land uses. Large areas of forests planted in the 1980s and
1990s are coming up to harvestable age in the early 2020s.
Those forests will then become a significant source of
emissions.
A carbon price of $21 has decreased rates of
deforestation, but has only had a small effect on
afforestation so far.
RIPARIAN PLANTING IN THE ETS
Riparian planting can provide a range of environmental
benefits, including increased water quality, biodiversity,
amenity, and carbon storage. Riparian margins can be
registered in the ETS if they meet the current definition for
an eligible forest including size requirements.
Many New Zealand farmers have chosen to plant riparian
margins along the edge of at least some of the waterways
on their land. The establishment of riparian zones is an
important and visible way in which stock farmers can
improve the sustainability of their farming operation
and improve instream water quality and ecological
health. However, the establishment of such buffers
imposes financial costs on farmers (including fencing
and planting), and can reduce the amount of remaining
land they have available for grazing and other productive
activities.
In these proposals we are not proposing to change the
eligibility criteria of riparian margins in the ETS for the
following reasons:
The financial benefit for farmers is likely to be
small
The financial incentive for registering riparian planting
in the ETS is likely to be very low for most participants.
In practice, it is unlikely that extending the inclusion of
riparian margins in the ETS would drive a significant
increase in riparian planting (unless carbon prices
increase significantly). Currently, for a riparian margin
that was 5m in width on both sides of the stream, the
emissions unit value is estimated at around 2t/ha per year
per kilometre (assuming that native species are planted).
To avoid creating unintended impacts
Introducing an incentive to maximise canopy cover may
result in an unintended consequence of incentivising
farmers to establish riparian zones that are less effective
at promoting water quality, have higher maintenance costs
and risk more flood debris.
6 Te Uru Rākau
To avoid creating misalignment with
international accounting rules
Riparian planting which does not meet the definition
of ‘forest’ is not currently included in New Zealand’s
international carbon accounting and, therefore, doesn’t
count as mitigation towards our climate change targets.
LINKAGE TO THE WIDER ETS REVIEW WORK
The Ministry for the Environment (MfE) is currently
consulting on improvements to the overall ETS. The
proposals aim to make the scheme fit-for-purpose so that
it can help New Zealand deliver on its existing and future
emission reduction targets, over the 2020s and beyond.
They focus primarily on the framework of the ETS so
that the scheme provides more predictability for market
participants, while also providing the Government some
flexibility to make well-signalled adjustments in response
to changing domestic and international circumstances.
Specifically, the proposals intend to improve the unit
supply framework of the ETS, as well as make a range of
operational improvements to the ETS.
These wider proposals will require amendments to the
Climate Change Response Act (CCRA) to implement. While
the legislation is under review, we have a good opportunity
to make changes to the forestry aspects of the ETS at the
same time.
SUMMARY OF PROPOSALS
This discussion document introduces a proposed package
of changes to improve the ETS for forestry participants.
The Government has prioritised this package of changes,
as they are important for enabling and promoting
additional forest planting in New Zealand.
It is important to clarify that these proposals for changes
to the ETS accounting approach in this discussion
document relate either to existing forests (trees planted
after 1989 that are already in the ground whether they are
registered in the ETS or not) or to new forests. They do not
introduce changes for pre-1990 forests. However, some of
the operational changes covered later in this document do
apply to pre-1990 forests.
Some of the proposals in this discussion document
contain different options for new forest planting than for
existing forests. This is because our forestry proposals
are primarily intended to improve the ETS so that it
incentivises additional forests to be planted and this is
clearly not relevant for existing forests. Introducing new
rules for existing forests raises some challenges. For
example, while we could offer existing forest owners
access to the new accounting approach described in this
discussion document, it presents some challenges to the
future management of the ETS as it affects the number of
units in the market by a significant amount.
Some of the changes we discuss focus on supporting new
permanent forests, others support new rotation forests
and some seek to improve the ETS for all forestry ETS
participants. They cover four main categories of change:
• changing how forests earn and repay carbon credits in
the ETS;
• introducing a mechanism for recognising emissions
mitigation from harvested wood products;
• creating a new permanent forest activity in the ETS;
• introducing a package of operational changes
to improve the way the ETS works for forestry
participants.
The remaining proposals are less significant and would
correct deficiencies, introduce new powers or make minor
process improvements. We believe implementing these
changes will make it easier to participate in the ETS by
reducing complexity and removing some unnecessary
administration.
The information we provide in this discussion document
is supported by a technical note (entitled Technical Note:
Impact Summary). The technical note contains detailed
analysis supporting the options we have provided, and
describes what options have been discarded and why.

We describe a range of proposed changes to the CCRA

that would:
• introduce new policies and processes to improve the
ETS;
• provide opportunities to improve, simplify or better
explain existing processes;
• fix some technical issues.

ETS Forestry Consultation 7

 What is “new” forest?
To be considered “new” forest it must be planted on bare land (land that is not forest land).
Forest land is considered:
a) any land of at least 1 hectare that has, or is likely to have, tree crown cover from forest species of more than 30 percent
in each hectare; and
b) Includes an area of land that temporarily does not meet the above requirements (e.g. through harvesting) but is likely to
revert to forest species.
• This means that temporarily harvested forest does not meet the requirement to be bare land.
• For an existing forest to be considered bare land again, it must be cleared, and remain as non-forest land for four
years before it can be re-planted and considered “new”.
c) This does not include:
• A shelter belt (or most riparian plantings) where the average crown width is less than 30 m and isn’t contiguous with
another area that meets the above requirements4.
It must also meet the “new” requirements.
• Was not forest land on the date that will be defined in the act.
• Was forest land on the date that will be defined in the act, but was deforested on or after 1 January 2008, and the
liability arising from the deforestation has been met.
It must also meet the existing requirements of all post-1989 forests.
An area of forest land is defined as post-1989 forest land if at the time of application to join the ETS
the area satisfies the above definition of forest land, and in addition:
• was not forest land on 31 December 1989; or
• was forest land on 31 December 1989, but was deforested between 1 January 1990 and 31 December 2007; or
• was pre-1990 forest land that was deforested on or after 1 January 2008, and the liability arising from the
deforestation has been met; or
• is ETS-exempt pre-1990 forest land that has been deforested, and the liability that would arise had the land not been
exempt has been met (refer page 53 for proposal to amend this).
Post-1989 forest land may include exotic and/or indigenous forest species. It may also include forest land that is eligible to
be voluntarily transferred into the ETS from the Afforestation Grant Scheme.

4 Shelter belts do not meet the forest definition for international accounting for forest carbon, so would not be accounted for internationally. Analysis by Te Uru
Rākau also indicates that the land owner would receive insufficient income from NZU sales from shelter belts to cover the cost of entering them into the ETS and
claiming those units.
8 Te Uru Rākau
3. Simplified Accounting Approach for the ETS
Summary of Proposals
1. We propose a significant change to the ETS accounting approach for calculating and rewarding forest carbon
for new forest planting called “averaging” accounting. This change in accounting approach is primarily
designed to drive new afforestation. New planting means planting new forests on land which is currently being
used for a different land use (i.e. it is not currently in forest). This proposal will affect:
• how many units people receive from the Government for their forest carbon;
• when they will receive these units from the Government;
• how many units they are expected to pay back to the Government following harvest and adverse events.

2. We present some options for the future accounting approach for existing forests registered in the ETS if
compulsory averaging is introduced for new forests:
• all existing forests remain on the current approach (status quo); or
• require all existing forests to move to averaging; or
• allow existing forests a one-off decision to choose between the two accounting systems (averaging or the
current approach).

Changing our accounting approach in the ETS is likely to
drive much higher rates of tree planting in New Zealand.
Economic modelling5 indicates that our combined package
of proposed changes to ETS accounting could increase
forestry’s contribution to our 2030 climate change target
from 18 million tonnes to 32 million tonnes.
The opportunity for change has come from the way
New Zealand accounts for forest carbon when meeting our
2030 target under the Paris Agreement. New Zealand has
recently changed its approach to accounting for forestry
when meeting its international climate change targets
(refer to appendix one on the website for more details).
This revised accounting method is known as “averaging”
and was negotiated to support us to more accurately
measure the climate contribution from New Zealand’s
forest estate over the long term.
As part of its first nationally determined contribution (NDC)
under the Paris Agreement, New Zealand described its
intended accounting approach to forestry and land use
for the 2021-2030 target. This approach modifies the
HOW THE ETS ACCOUNTING APPROACH WORKS
NOW
Currently people can register post-1989 forests in the ETS
and receive emissions units as their forests grow. These
units are called NZUs and each one represents one tonne
of carbon dioxide equivalent. They can be held or sold
on the market for around $21 per unit at current market
prices. Other ETS participants can purchase them to meet
their ETS obligations.
Those with existing post-1989 forests registered in the
scheme earn units for the growth of their forest. This
means calculating and reporting on the change in carbon
stock through an emissions return (similar to a tax return).
An emissions return must be submitted at the end of each
emissions return period, every five years, but can also be
voluntarily submitted every year.
Figure 2: Carbon stock change accounting
example
1200

Kyoto Protocol rules by incorporating a forest carbon

Cumulative carbon stock tCO2/ha

1000
“averaging”approach to take better account of our fast-
growing production forests. Twenty seven European Union 800
(NZU/ha)

member states have adopted a similar approach. The

600
benefits of this approach are that it:
• creates effective accounting incentives for the 400

establishment of more new forests and improvements

200
to existing forest management;
• allows for the sustainable harvest of our production 0
2008
2012
2016
2020
2024
2028
2032
2036
2040
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2048
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2056
2060
2064
2068
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2100

forests into the future, even with higher carbon prices.

This change provides an opportunity for New Zealand to
consider introducing the averaging accounting approach
into the ETS for forestry.
5 For more detail refer to the Regulatory Impact Assessment for the forestry
accounting proposals.
This forest will earn 1080 NZUs per hectare, and will
be required to pay back 820 NZUs at harvest. This
means that only 260 NZUs can be sold without a harvest
liability.
ETS Forestry Consultation 9
As the forest grows the change in carbon stock is positive
and the forest will earn units equal to the change in
carbon stored. Harvesting, or forest cover lost through
an adverse event, results in a negative change in carbon
stock as logs are removed from the land and woody debris
decays over time. So then units need to be surrendered to
the Government equalling the reduction in carbon stock.
If the forest is replanted then the positive carbon change
from the growth of the new forest will eventually outweigh
the negative change from the decay of the old forest. As
the carbon stock of the forest does not return to zero the
forest owner accrues a portion of units, known as “low
risk units”. These units are not required to be repaid so
participants can sell them on the carbon market without
facing a future liability as long as the land remains in
forest.
This is referred to as the “carbon stock change”
accounting system. For example, a participant who
planted a radiata pine forest in 2008 could receive units
from forest growth in the ETS. If the forest is harvested
on a 30 year rotation, the participant will continue earning
units for the forest growth until 2038. After this they
must pay back units representing all of the stock that is
removed at harvest. Some of the carbon stock is retained
as below ground biomass and slash6 that isn’t removed
from the site at harvest. This means that there is a portion
of units for which there is no liability at harvest, only on
deforestation. This is shown in Figure 3.
WHAT CHALLENGES DOES THE CURRENT
ACCOUNTING APPROACH PRESENT?
Having to repay or surrender units at harvest means that
some foresters take a financial risk if they choose to sell
units earned while the forest grows, that will then have to
be repaid when the forest is harvested.
There are difficulties in calculating and accounting for
changes in carbon stocks due to harvesting, particularly
if a forest contains different ages and species of trees
that are harvested and replanted at different times. As a
result it is hard for some foresters to estimate how many
units they will have to pay back on harvest, which acts as
a disincentive for them to sell their units. Many foresters
Figure 3: “Averaging” accounting
have held on to a large proportion of their NZUs to cover
this harvest cost.
HOW THE PROPOSED NEW AVERAGING
ACCOUNTING APPROACH WORKS
tCO2/ha (NZU/ha)
Under the proposed simple accounting approach (called
averaging) this would change for new forests. Forestry
participants would earn payments of emission units
that represent the carbon increases in their forest, up
until their forest reaches a level of carbon storage that
represents the average carbon stock it will hold over the
long term. They would no longer face any liabilities on
6 Any tree waste left behind after forestry activities.
10 Te Uru Rākau
harvest or following an adverse event. This sum of units is
based on the average amount of carbon the forest holds
when multiple growth and harvest cycles are taken into
account. As long as the forest is not deforested no units
would be owed to the Crown upon harvest. Forest owners
would only be able to earn further NZUs if they replant
a higher carbon stock tree type, for example redwoods,
or potentially if they change forest management. (Refer
to the Detailed Design Questions section on page 16 for
more information).
The units would be transferred to the participant as
their new forest grows. Once the forest reaches a carbon
storage volume that is the equivalent to its long term
average, unit payments would cease. For example, a
radiata pine forest grown in New Zealand and harvested
at age 28 will usually reach its average carbon storage
at age 18-20. So the forester with radiata pine rotation
forests will earn NZUs up to 18-20 years of age in its first
growing cycle.
The carbon storage average for forests registered in
the scheme would vary depending on factors that affect
carbon yield including the region and forest type. This
approach assists the ETS in supporting the right tree
to be planted in the right place for the right purpose.
For example, a radiata pine forest planted in Taranaki
would be eligible for a different average than a redwood
forest planted nearby. The amount of carbon units these
two forests could receive would reflect the long term
carbon stock of these different kinds of forest and would
therefore not be the same.
WHAT ARE THE BENEFITS OF CHANGING TO
AN AVERAGING ACCOUNTING APPROACH?
Averaging accounting is likely to increase incentives to
participate in the ETS and establish new forests because:
• foresters are likely to be willing to sell more of the
NZUs they are allocated for carbon stored in their
forests, thus increasing the financial return from
establishing new forests;
• it reduces ETS forestry complexity (no harvesting
calculations are required) and compliance (reduced
1200
1000
800
600
400
200
0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91
Forest Age
Averaging Current Accounting
 ongoing reporting and monitoring
requirements).
As well as the benefits of a less
complex system, introducing
averaging would align our domestic
settings with the NDC, helping
ensure the ETS is an effective climate
change mitigation tool.
An aligned system helps ensure
NZU surrenders and allocations
and the NZU/carbon price reflects
New Zealand’s unique challenge to
meet climate change targets.
Under averaging accounting, the
Crown would allocate NZUs to ETS
participants for new forest growth
up until their forest reaches its long
term average, or equivalent amount
of carbon stock, on the forest’s first
rotation. ETS participants would
not be required to repay NZUs for
harvesting as long as they do not
deforest. They will still have to
account for deforestation emissions,
and may be required to account
for significant changes to forest
management.

3.1 OPTION FOR Alternative options

INTRODUCING AVERAGING We discarded the option for those
ACCOUNTING FOR NEWLY with new forests to have a choice
PLANTED FORESTS of either averaging accounting or
carbon stock change accounting as
this option would not resolve the
Option 1 (Preferred): issues with carbon stock change
Require all people who accounting. Optional access to
register new forests in averaging accounting introduced
the ETS (first established unwanted complexity to the scheme
after a certain date) to and would maintain misalignment
use averaging accounting. between the current system and
We propose to introduce a mandatory New Zealand’s rules to account for
change to ETS accounting for new our first NDC.
forest planting (the “averaging”
accounting approach). This change is
intended to simplify the scheme and
increase the afforestation incentive
for ETS participants. It means that
everyone who registers new forests
in the ETS will be required to use
averaging accounting, although
joining the ETS will remain voluntary.

Consultation Questions:
1. Do you agree with the Government’s
preferred option to require all people who
register new forests in the ETS to use
averaging accounting? If you disagree
could you please provide your reasons
why? What do you think will be the main
impact of this option for you or other land
owners?
ETS Forestry Consultation 11
3.2 OPTIONS FOR
ACCOUNTING FOR EXISTING
FORESTS
We could offer existing forest
owners access to the new
accounting approach. It presents
some challenges to the future
management of the ETS as it affects
the number of units in the market by
a significant amount. This decision
represents a trade-off between short
term stability in the ETS, and making
the system simpler and operate more
effectively over the long term. We are
also aware that some people with
existing forests may prefer to retain
the existing approach.
Following consideration of these
factors, we are not presenting a
preferred option in this discussion
document.
We are also aware that any option
where existing ETS forestry
participants move to averaging
would require an appropriate
transition solution. Options for a
viable transition, if required, have
been included on page 15 of this
document.
Option 1 (continue with
existing carbon stock
change accounting):
Require all ETS forestry
participants with existing
forests on post-1989
forest land to use
“carbon stock change”
accounting.
This option would retain the
current “carbon stock change”
accounting approach for existing
forests. This maintains the rules
participants signed up to when
they entered the ETS. It prevents
short term disruption to the current
accounting system requiring a
change to business plans, and a
formal transition with the associated
potential costs and disruption,
wouldn’t be needed.
However these benefits may
be outweighed by the following
12 Te Uru Rākau
challenges:
• ETS forestry participants who
may see a move to averaging
as a way to help reduce their
compliance effort and costs would
be prevented from changing to the
new accounting approach.
• Creating two “classes” of
post-1989 forest, new forests
on averaging accounting and
existing forests on the existing
carbon stock change accounting
approach, therefore adding to the
complexity of the ETS for both
participants, Te Uru Rākau and
prospective land buyers.
• Retaining the current carbon
stock change accounting approach
would also maintain misalignment
between international and
domestic ETS accounting in
perpetuity, limiting the ability
of the ETS to drive forestry
mitigation in line with climate
change targets in the medium
to long term, and creating a
potential fiscal risk for the Crown
due to the difference between
its international climate change
targets and its domestic settings.
Option 2:
Require all ETS forestry
participants with existing
forests on post-1989
forest land to use
averaging (if they register
their forests in the ETS).
Existing ETS forestry participants
could be required to transition to
averaging accounting. This would
mean that from the date averaging
comes into force, all ETS forestry
participants on post-1989 forest land
would account for carbon stored in
their forests in the same way.
The benefits of having all post-1989
ETS rotational forestry participants
on the same accounting system
include:
• Enabling all foresters to make
more informed and confident
decisions about how to maximise
the carbon stored in their forests
• Increasing the number and
proportion of NZUs that foresters
can sell at low risk
• Removing harvest charges
• Simplifying how to comply with,
and administer, the system
• Aligning ETS accounting with
international accounting.
Existing forests will be at varying
stages of growth. Some will still be
below their long term average and
some will be above. Participants
who have forests below the average
age would cease earning units once
the forest reached its average age.
Participants that are above the
average carbon stock at the time of
the transition would be required to
repay any units received for forest
growth above the average carbon
stock. This would effectively align
the entitlement of units to growth
that occurred below the average on
the forests first rotation. This aligns
the potential earnings to the level
of contribution the forests will have
made to international targets.
A key impact of this option is the
removal of surrender obligations
at harvest for existing forests. This
would increase the number of units
in the ETS overall, which could have
a potentially significant fiscal impact
for the Government.
We are aware that the requirement to
repay NZUs to the Crown from those
who have already received NZUs
above the average age of the forests
could cause financial stress to some
ETS participants if they are required
to repay units before harvesting.
This is addressed in the transitions
section on page 15.
A compulsory transition to averaging
removes the option of using the
current carbon stock change
accounting. This will have an impact
on those participants that have based
business plans on continued use of
carbon stock change accounting,
including those that have forward
sold NZUs.
Examples for the required use of averaging
for existing forests
Participants will need to return any units earned
for growth above the long-term average. If a
participant owned a 25 year old forest (at the
time of transition), and the long term average of
that forest was reached at age 20, they would be
required to repay any units earned while the forest
was growing between 20 and 25 years.
Figure 4 shows a transition for a forest planted
in 1999, registered in the ETS in 2008, assuming
a 30 year rotation and a 20 year average age. The
different bubbles apply to different treatments of
units:
A. Shows the full potential harvest liability if the
forest owner continues to use the existing carbon
stock change approach (approximately 820 NZUs
per hectare).
B. Shows the liability required upon transition to
averaging (approximately 210 NZUs per hectare).
C. Shows the units that do not have to be repaid
under averaging (approximately 380 NZUs per
hectare).
If a forest was harvested before the transition to
averaging (but during the most recent emissions
reporting period), they will be transitioned to
averaging as an “above average forest”. This means
that the harvest liability will be reduced to only
apply to the units earned for growth above the
average.
For example: a forest planted in 1995, on a 28 year
rotation will be harvested in 2022. If the transition
occurs in 2023, the owner of this forest will be
required to repay units earned from 2015 to 2021
(assuming a 20 year average). Alternatively, under
the current approach, the owner would be required
to pay a harvest liability.
Figure 5 shows:
A. The full harvest liability that the participant
would have to repay if they remained on the
current approach (approximately 580 NZUs
per hectare – capped by the number of NZUs
received as a participant is not required to pay
back more NZUs than they have received).
B. The liability required upon transition to averaging
(approximately 340 NZUs per hectare)
C. The amount of units that do not have to be repaid
under averaging (approximately 240 NZUs per
hectare).

Figure 4: Figure 5:
1200 1200

1000
1000
tCO2/ha (NZU/ha)

B B
tCO2/ha (NZU/ha)

800
A 800
A
600
600
C C
400
400

200
200

0
0
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037

1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033

Current Accounting Average Averaging Current Accounting Average Averaging

ETS Forestry Consultation 13

 Option 3: It would also better align the ETS
All ETS forestry accounting with international
target accounting, especially if
participants with existing
most participants decided to use
forests on post-1989
averaging.
forest land have a one-
off, one-way choice to Like option 2, a key impact of this
use either averaging or option is the removal of surrender
carbon stock change obligations at harvest for existing
forests that chose to move to
accounting.
averaging. The extent of this impact
This option would enable existing
would depend on how many existing
forest owners the choice to use the
forests moved to averaging. This
accounting system which best fits
would increase the number of units
their circumstances.
in the ETS overall, which could have
While allowing a mix of accounting a potentially significant fiscal impact
approaches would increase the for the Government
number of categories of forest in the
All forest owners who chose to use
ETS, and be more administratively
averaging accounting would be
complex for Te Uru Rākau, this
required to surrender a number
option also ensures those who have
of units equivalent to the NZUs
business plans and contracted
previously received for forest
commitments based on carbon stock
growth above the average carbon
change accounting would not be
stock of their forest. The transition
disadvantaged. As it is a once only
arrangements discussed for option 2
decision it would also help prevent
would also apply with this option.
ETS participants from “cherry
picking” between the two accounting Please note, if participants choose to
approaches. keep using the carbon stock change
accounting approach for existing
This retains the benefits of averaging
forests, they will still be required to
for those foresters who choose to
use averaging for any new forests
move to that accounting system by:
(new planting on bare land, not
• Removing harvest charges
the replanting of existing forests
• Simplifying how to comply with,
post-harvest) they establish and
and administer, the system
register in the ETS if that proposal is
• Increasing the number of NZUs
implemented.
that foresters can sell at low risk.

Consultation Questions:
2. Out of the three options presented regarding averaging
accounting and existing forests could you please select your
preferred option? Could you please explain why it is your
preferred option? What do you think will be the main impacts
of this option for you or other land owners? If there are other
options you think we should consider please list them.

14 Te Uru Rākau
3.3 TRANSITION However, we are aware this could Option:
CONSIDERATIONS FOR A MOVE cause financial stress for some
TO AVERAGING ACCOUNTING ETS forestry participants who have ETS forestry participants
We are aware of the need to provide already sold, or forward sold, these with existing forests on
viable and helpful transition credits, and haven’t received any post-1989 forest land
arrangements for ETS forestry income from harvesting. Also some who have an obligation
participants if they move to averaging small forest owners who want to to repay NZUs at the
accounting. Definitive proposals for transition to averaging may find they transition MERP could
transition arrangements haven’t been are not in a financial position to do so be given the option to
provided in this document. We would at the transition MERP. surrender units at the
appreciate your views on the options
Possible Approach: next MERP.
below, or other options you think we
should consider. The following describes a viable This option would give ETS forestry
flexible repayment option for ETS participants time to adjust their
participants who would have an business plans to ensure they can
Context: cover the repayment cost. It would
obligation to repay NZUs at the
According to the proposal about
transition MERP, and have not also limit the length and difficulty
how to define a new forest under
harvested. Under this option, of the transition. Many participants
averaging (page 11) participants
participants above the average that would also harvest between the
with existing forests could be
are transitioning to averaging will transition MERP and the next MERP,
transitioned to averaging relatively
cease earning units at the transition if their forest was already above the
quickly at a Mandatory Emissions
MERP and become “above average” average at the transition MERP. We
Return Period (MERP). This will help
forests. Only their repayment are also aware a small number of
reduce confusion and cost for both
obligations would be delayed. participants, whose forests are above
participants and potential buyers of
the average at the time of transition,
forest land, by ensuring carbon stock
but have not harvested, may need to
calculations are accurate.
find additional funding to repay their
It would be simpler to move all existing NZUs with this option.
ETS forestry participants to averaging
This option would not apply to forests
at the end of the first MERP after
that had been harvested before the
legislation has been passed, and the
end of the transition MERP. These
systems and processes needed to
forests will have a reduced liability on
support the change are in place.
transitioning to averaging, compared
For foresters who have not yet with the harvesting liability they
harvested, requiring existing ETS would have faced under the carbon
forestry participants to surrender stock change accounting approach.
NZUs received for forest growth
above the average at the end of this
MERP brings forward part of their
harvest NZUs repayment obligation
to the Crown. This ensures that the
Crown has allocated and received
comparable amounts of NZUs from all
ETS forestry participants in the new
averaging system. It also would align
NZU flows with the accounting rules
used internationally to determine Consultation Questions:
the contribution New Zealand forests
3. Do you agree with the Government’s option
make to climate change targets.
regarding transition considerations in a move to
averaging accounting? If you don’t agree could
you please explain why? What do you think will
be the main impact of this option for you or
other land owners? If there are other options
you think we should consider please list them.

ETS Forestry Consultation 15

3.4 DETAILED DESIGN QUESTIONS FOR AVERAGING ACCOUNTING

Summary of issues covered in this section

1. How to define a new additional forest under averaging. If averaging is introduced there is a need to clearly
define what forests will be classified as “new” under averaging and the date at which the change will apply from.

2. How to calculate the long term average carbon storage capacity of a forest under averaging accounting.
Providing a carbon storage calculation approach and a way to convert that calculation into an age at which an
ETS participant’s forest will reach its long term average carbon stock.

3. How to calculate average crediting age and carbon storage. Deciding at which age a forest will have stored
its long term average carbon stock, and how these averages will be applied nationally across different species,
regions and forest types.

4. How could a change in the average carbon storage crediting age be applied to existing participants?
If an average is changed by government after regulations are introduced, it needs to be decided how this
is done and whether it can apply retrospectively to existing participants using averaging accounting.

5. Options for how many units a participant will be able to claim for growth in carbon storage before a forest
is registered into the ETS. If a participant uses averaging accounting with a forest that has already been
established, there is a need to clearly determine how many emissions units they can be allocated for past carbon
storage.

6. Outlining ongoing reporting and monitoring requirements. Once a participant’s forest passes the “average”,
what ongoing reporting and monitoring requirements will be required?

Context
Changing to a new accounting approach would require
making decisions on some detailed design questions
for how the new accounting approach would work for
participants. We are looking for your input on these
design questions because they will affect who benefits
from the introduction of the new approach and how much
benefit they receive.
These detailed design proposals are also intended to help
you understand how the averaging accounting rules would
work for forestry if they decided to register new forest
planting in the ETS.
Proposals for consultation:
1. How to define a new forest under
averaging
If some ETS participants with existing forests are able to
remain on the current carbon stock change accounting
approach there is a need to clearly define what forests are
classified as “new” under averaging. There is also a need
to signal a date as early as possible for when this change
applies from to provide clarity for the forestry sector and
support planting decisions.
If access to averaging accounting is introduced for all
existing forests, there will be no need to define a date for
“new” forests as averaging will apply to all forests.
16 Te Uru Rākau
Option:
Trees planted after 1 January 2020 are
“new forests”
We propose that forests planted on currently un-forested
land from 1 January 2020 would be considered “new”,
following changes to the legislation expected in 2019.
Implementing the “new forest” rule once Parliament has
passed the legislation gives certainty to the sector that
the rules are final.
For example: Anyone establishing a forest during 2020
would be considered to be planting a “new” forest. They
would be required to account for this forest using the
averaging approach. Anyone who established a forest
prior to 2020 (2019 and earlier) would be required to
use the carbon stock change accounting approach. This
applies to the forest regardless of registration date.
Any forest planted before 2020 and not registered in the
ETS would be required to use the carbon stock change
accounting approach upon registration, even if it is first
registered after 2020.
Consultation Questions:
4. Do you agree with the Government’s
preferred option that trees planted after
1 January 2020 are ‘new’ forests? If
you disagree could please provide your
reasons why? What do you think will be
the main impacts of this option for you or
other land owners?
2. How to calculate the long term average carbon Option (Status Quo
storage capacity of a forest under averaging and Preferred):
accounting Require all ETS post-1989
If averaging accounting is to be implemented, we need a feasible way forestry participants with
for both ETS forestry participants and Te Uru Rākau (as ETS forestry land below 100 hectares
administrators) to determine what the long term average is for forest
to use default look up
carbon stocks under this accounting approach. This includes setting out
how to determine carbon storage in forests and how to convert that into an tables and those with
appropriate “average long term carbon age”. land over 100 hectares
Having this methodology confirmed early will allow regulations and any to use FMA approach to
needed administration systems and processes to be developed for a “go measure carbon storage
live” date. It is also envisaged that any future changes needed for this in their forests.
methodology can be altered through these regulations.
The current approach could be
Currently the ETS has two tools to determine both the amount of carbon
retained for ETS forestry participants
stored in a forest and the forest’s long term average carbon stock.
using averaging accounting. This
• For participants with post-1989 forest land less than 100 hectares,
option appropriately balances
regional or national default tables of carbon stock by age are available
for five forest types. complexity for participants,
administration cost, accuracy, ETS
• For participants with post-1989 forest land of 100 hectares or more
the owner must use tables of carbon stock by age derived from incentives, and risks to the Crown of
field measurements and future management intentions (the Field the over-allocation of NZUs.
Measurement Approach (FMA))
Te Uru Rākau is aware there is a need to review the yield tables to ensure
they are complete and have integrity. But this (and if needed any changes
to the 100 hectares threshold) can occur after consultation on the ETS
proposals as any changes could be implemented as part of Te Uru Rākau’s
business as usual regulation updates.

Consultation Questions:
5. Do you agree with the
Government’s preferred
option to continue to
require all ETS post-1989
forestry participants with
land below 100 hectares to
use default look up tables
and those with land over
100 hectares to use the
FMA approach to measure
carbon storage in their
forests? If you disagree
could you please provide
your reasons why? What do
you think will be the main
impacts of this option for
you or other land owners?

ETS Forestry Consultation 17

3. How to calculate
average crediting age and
carbon storage
We need to decide on how the
average crediting age of the forest is
defined under averaging accounting
for the different forests’ types and
regions. For different forest species
the age when the forest reaches its
long-term average carbon stock
doesn’t vary much due to conditions
at the site. However, the average
crediting age is sensitive to rotation
length for harvestable forest, or
the time to maturity for permanent
forests. The scheme settings need
to be both reasonably accurate and
yet simple enough to be practical for
participants.
18 Te Uru Rākau
Option 1:
The age at which the
long term average
carbon stocks occur is
set as a series of default
ages for all ETS forestry
participants based on
forest type and region.
For most participants with small
forests the default tables (with a
default long term average) provide an
acceptable level of accuracy. Default
tables would also be significantly
less complex for Te Uru Rākau to
administer than allowing participants
to apply for an average age specific to
their forest.
However this system will not
incentivise increasing carbon storage
through longer rotations and is
not easily adaptable to alternative
species and management regimes.
Option 2:
The age at which average
long term carbon stocks
occur is set as a series of
default age bands for all
ETS forestry participants
based on forest type,
but ETS participants
can nominate a rotation
length band as well (see
next page for further
information).
Consultation Questions:
6. Out of the two options
presented regarding how
to calculate the long term
average carbon storage
age what is your preferred
option? Could you please
explain why it is your
preferred option? What do
you think will be the main
impacts of this option for
you or other land owners? If
there are other options you
think we should consider
please list them.
Rotation age bands (option 2)
There are a number of ways There would be ongoing reporting,
that rotation age bands could be to confirm that the forest is
designed. The final settings for the harvested in that rotation age, and
bands would be decided as part of monitoring to confirm the same.
regulations updates prior to the A participant would be required to
implementation of averaging. always harvest in that age band,
The following provides more unless they report a change. If a
information about how bands could participant chooses to later shift
be structured. age bands they will be required to
pay back the difference (or earn
For rotation age bands to work in
more units if they increase their
practice, a participant will have
rotation length). For example, if a
to nominate an age band for their
participant nominates a 35-40 year
forests rotation age in advance.
age band, but harvests at age 28,
An age band would consist of an
they will be required to pay back any
age period (e.g. between 35 and
units between the average age for
40 years) that they would harvest
their nominated age band, and the
their forest between. They would be
average age for a forest harvested
required to maintain this rotation
at 28. Failure to notify would also
age, or face liabilities if they moved
result in penalties. Likewise a
to a shorter rotation.
participant could lengthen their
Each rotation age band will have rotation age in order to claim an
a nominated average age, which increased average age, and earn
would allow a participant to earn more units.
more units for lengthening their
Age bands could be structured
rotation age. For example, a
as broad age bands, narrow age
participant could nominate a longer
bands, and could use a wider
rotation age than the “normal”
default age band.
rotation length (e.g. 35-40 instead
of 25-34). This participant would be Broad age bands would mean less
given a higher “average age”, and chance of accidentally shifting
therefore earn more units than if bands from one rotation to the
they had a shorter rotation. They next, but lessens the incentive on
could keep and sell these units, as rotation ages. Narrow age bands
long as they continued to harvest would provide a greater and more
within that rotation age. accurate incentive for shifting
rotation ages, but would mean more
complexity to manage what age
band a forest will fit into.
One way to manage this would
be a wider “default” age band,
where most “normal” behaviour
is treated the same, and there is
less reporting requirements, and
other age bands that would need
to be nominated by a participant.
All participants that harvested
within the default age band would
receive the same average age, so
long as they continued to harvest at
a rotation length that fit within the
default.
Over 13 years of the National
Exotic Forest Description, the
average harvest age of radiata pine
as remained close to 28 years,
and most harvesting occurs at
similar ages. This could mean
that a default age band could be
established for forests harvested
between 25 and 34, which would
account for more than 90 percent of
harvested radiata pine forests. This
could be used in conjunction with
narrower, nominated, age bands
for the harvest ages outside of this
default.
Another option would be a narrower
default age band. A five year age
band could account for around
75 percent of radiata pine harvest.
A similar approach could be used
for other forest types, but due to
differences in regime types, there
is more of a spread of “normal”
harvest ages, so a “default” band
would be harder to define.

Figure 6: Distribution of Radiata pine mean harvest age

50,000
Narrower “nominated” Age Bands Default Age Band Narrower “nominated” Age Bands
45,000
40,000
Harvest area (ha)

35,000
2006-2009
30,000
2010-2013
25,000
2014-2017
20,000
15,000
10,000
5,000
0
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Average harvest age

ETS Forestry Consultation 19

4. How could a change in the average crediting age be applied to existing
participants?
This section presents options for participants who are above the average when a change to the
average age is introduced, followed by options for participants that are below the average when a
change is introduced.
The key consideration is the level of uncertainty for the participant in relation to the units they will
receive for their forest. The preference is to minimise reporting and ongoing risk for the participant.
If there is no need to return units in the future, based on later government changes to regulations,
averaging is more attractive.

Options for participants who are above the average age, when a change to the average age in the regulations is introduced.

Option 1 (preferred): managed through using age bands, Option 2:

ETS participants will not
be required to repay NZUs
after their forest reaches
the average age (if they do
not change the way they
manage their forest).
Participants who have forests above
the average age will not be required
to repay, or be able to earn more
units, if the government changes the
average age in the regulations.
If a participant changes their forest
management approach in a way that
means a different average age in the
regulations applies to their forest
(after ages in the regulations have
changed), the participant will earn
or repay units to account for the
difference between what they have
earned, and the new age as set in the
regulations.
and a conservative approach to
crediting.
For example: if the average age
specified in the regulations for
a particular forest was 20, the
participant will earn units for the
first 20 years of the forest’s life cycle.
Once past this average age, if the
age specified in the regulations was
dropped to 19, the participant would
not be required to repay any units
to account for the carbon difference
between age 19 and 20. Likewise, if
the age specified in the regulations
increased to 21, the participant
would not be eligible to earn units
to account for the carbon difference
between age 20 and 21.
ETS participants will be
required to repay NZUs
after their forest reaches
the average age (if they do
not change the way they
manage their forest).
Participants who have forests above
the average age will be required
to repay, or be able to earn more
units, if the government changes
the average crediting age in the
regulations.
This is likely to mean that
participants required to account for
changes to the average crediting age
set in regulations retain some units
earned, in order to lower the risk of
an unplanned liability. This would
diminish the effect of the incentive in
the ETS, and lead to higher rates of
unit “banking” in the ETS.

This gives participants certainty that It would give the Crown greater
they are only required to account ability to recoup costs of
for changes that they make to their overpayment, but it would undermine
forest. This would mean that once confidence in the scheme because
their forest is at the average age they participants would not be able to
can be confident that NZUs earned ensure that the units they’ve received
can be traded, with low chance of an will not be required to be repaid.
unplanned liability.

The Crown will have less ability to

manage risks of changing participant
behaviour. If an average age was
Consultation Questions:
reduced in regulations due to
changing participant behaviour of 7. Do you agree with the Government’s preferred option regarding
participants past the average (e.g. how a change to the average age in regulations can be applied
to existing participants who are above the average age? If you
a trend towards shorter rotations) it
disagree could you please provide your reasons why? What do you
would have limited ability to recoup
think will be the main impacts of this option for you or other land
the cost of over-payed NZUs to
owners? If there are other options you think we should consider
participants. However, this could be please list them.

20 Te Uru Rākau
Options for the average age that will apply to participants who are below
the average age, when a change to the average age in the regulations is
introduced.

Option 1 (preferred): Option 2:

The Government is Require ETS forestry
able to change the participants using
number of units ETS averaging to continue
forestry participants to surrender or receive
using averaging receive NZUs as per the average
to reflect changes in age that was set in
the average age set in regulations when their
regulations. forest was first registered
A participant would always receive
in the ETS.
units up to the average as the This would provide the most certainty
average is set in the regulations. This for participants. It would allow them
means that a participant below the to form clear expectations about the
average could have their earnings level of units they will receive.
expectations changed after a forest
However, it would also mean there
is planted.
is a significant lag between the
This gives the Crown a mechanism Government identifying a need to
to increase or decrease unit change the level of the average and
expectations in the ETS to actual changes being fully reflected
reflect changing behaviour or in forestry units in the ETS, as it
circumstances. This will support would mean any changes made to
the ETS to be accurately reflecting regulations would only be effective
carbon storage. once forests planted from then on
reach the average.
For example: a participant when
planting will expect to earn units
until their forest reaches its average
age. If the average age was 20, then a
participant will earn until their forest
is 20 years old. If the regulations
change, and the average age is
increased to 21 before the forest
reaches 20, then the participant
will continue earning until the
forest reaches 21. Likewise, if the
regulations change and the average
age is decreased to 19 before the
forest reaches 20, then the forest will
cease earning at age 19.

Consultation Questions:
8. Do you agree with the Government’s preferred option regarding how
a change in the average age can be applied to existing participants
who are below the average age? If you disagree could please provide
your reasons why? Could you also tell us below how you expect this
change will affect you/other forest owners?

ETS Forestry Consultation 21

 5. How far back can a
participant claim on entry
to averaging?
Currently participants are eligible
to earn units for forest growth
during each MERP. This means
that a participant cannot earn
any units for growth in previous
MERPs.
In averaging a participant cannot
earn units on the second rotation.
This means for many existing
participants, no more units can
be earned in averaging, and
there will not be crediting for
growth prior to 2008, or prior to
2013 if they did not join the ETS
during the first MERP. We do
not propose any change to the
current approach.
Option 1:
Status Quo (preferred) –
An ETS forestry
participant can only claim
NZUs from the beginning
of the MERP.
The existing approach still works
effectively under averaging
accounting, from both an
administrative and fiscal perspective.
However, if existing forest owners are
not permitted to continue earning
NZUs on their second rotation this
would mean those who entered the
ETS after their forests reached the
equivalent of the average age, would
be worse-off under averaging as they
would lose the ability to earn extra
NZUs on their second rotation and
they will not be able to earn any units
retrospectively for growth below the
average.

Figure 7: Graph showing MERPs

60
B
50
tCO2/ha (NZU/ha)

40

30
A
20

10
C
0
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
2061
2063

In the above graph, a participant that joined in year A would be

able to earn units back to 2025, the beginning of that MERP. They
would also be able to earn all future units for the forest. If that
participant joined in year B they would be able to earn the units
from 2030 onward, but not for the 2025-2029 period. If they joined
in year C they would not be able to earn any units, and would be
deemed to be above the average upon joining the ETS.

Consultation Questions:
9. Do you agree with the Government’s preferred option regarding how
far back can a participant claim NZUs/emissions units on entry to
averaging accounting? If you disagree could please provide your
reasons why? What do you think will be the main impacts of this
option for you or other land owners? If there are other options you
think we should consider please list them.

22 Te Uru Rākau
6. Ongoing reporting
This set of options builds on the
proposal for ETS participants to
earn NZUs for the growth of their
forests up to its average age. Once
the forest reaches its average age,
there is no more crediting or debiting
of the forest. This means participants
could face lower reporting and
measurement requirements. The
options for ongoing reporting are
shown below.
Option 1 (Status Quo):
Measurement and/or
reporting is required
every MERP.
This would result in continued
mandatory reporting and
measurement for ETS forestry
participants, despite no changes to
NZU allocations or surrenders for
forests. One of the key benefits of
averaging is the ability to simplify
and reduce ongoing reporting
requirements.
Option 2:
ETS forestry participants
only have to report
deforestation.
This is a simple approach, but if
ETS forestry participants change
any aspect of their forest, such as
rotation length or forest species, it
could result in a significant reduction
in the average carbon stored in
their forest. Conversely there would
also be no ability for a participant
to claim NZUs for increased carbon
sequestration through changes
in management such as planting
a different species or increasing
rotation lengths.
Under this system the Crown
wouldn’t have a way to recoup the
NZUs already paid to the participant
if they changed forest management.
This option could not be used in the
case of a rotation age band being
applied, as there could be no ongoing
reporting of compliance with a
rotation band.
Option 3 (Preferred):
ETS forestry participants
are required to report
changes to the average
age, deforestation and
confirm continued
management in each
MERP.
ETS forestry participants would be
required to report any change to the
forest that would result in the use
of a different average age for that
forest. This means if a participant
changes the species (forest type),
or changed the rotation length such
that it fell into a different age band,
they would have to report the change.
This option significantly lowers
the Crown’s risk due to changes in
circumstances in forests, without
placing undue reporting burden on
participants.
Participants would still be required
to report during each MERP, but
this would be reduced to a simple
confirmation of no changes to the
average age, and no deforestation.

Consultation Questions:
10. Do you agree with the Government’s preferred option
for ongoing reporting requirements? What do you
think will be the main impacts of this option for you
or other land owners? If there are other options you
think we should consider please list them.

ETS Forestry Consultation 23

4. Complementary Proposals to the
Introduction of Averaging
Summary of Proposals
1. Proposal to remove liability for short term repayments of NZUs for short-term adverse events.
2. Proposal for post-1989 forest owners to be able to “offset” (replant forests on other sites to avoid deforestation
liabilities).
Context
The following are additional
opportunities to improve policy
settings that are complementary
to the introduction of averaging
accounting.
1. Proposal to remove
liability for repayments
of NZUs for short-term
adverse events.
Currently the ETS requires
participants to account for a
reduction in carbon stock associated
with adverse events such as storms
and earthquakes. In the averaging
approach that will be applied as part
of New Zealand’s NDC in the Paris
Agreement, there will not be specific
accounting for emissions from
temporary adverse events (those that
do not result in deforestation).
24 Te Uru Rākau
Option 1 (Status Quo):
ETS forestry participants
with post-1989 forests
are liable for emissions
from temporary adverse
events.
Under the current approach ETS
forestry participants can pay high
insurance premiums to cover the
possible damage and cost from
temporary adverse events and the
need to repay NZUs. This reduces
the financial return from forestry
investment, which can subsequently
impact ETS participation and
afforestation.
Option 2 (Preferred):
No liability for post-1989
ETS forestry participants,
if under the “average”
they pause and begin
earning NZUs again once
their forest has regrown
to the carbon stock it held
at the time of the event.
Implementing this option could
prevent ETS forestry participants
from experiencing significant
financial stress from these events,
while also incentivising them to
quickly start to earn NZUs again.
Also under this option participants
will have less need to pay high
insurance premiums to cover NZU
liabilities, which will make entry
into the ETS under averaging more
attractive, particularly for permanent
forests (refer page 29).
But introducing this change would
add more complexity to the ETS as
new regulations would need to be
developed to carve out new areas
within/across forests. This would
require mapping affected areas
within forests and accounting for
that area separately to the rest of the
forest.
Additional considerations for
temporary adverse events:
If, after an adverse event, an ETS
forestry participant has claimed
the benefit of these provisions,
proof of re-establishment of the
forest would be necessary. Lack
of this proof within four years
would result in deforestation/de-
registration liabilities.
Further defining of the term
“adverse event” in this context
is needed. Detail such as
thresholds in terms of scale and
type of destruction need to be
considered upon final design of
the policy.

Consultation Questions:
11. Do you agree with the Government’s preferred
option for ETS participants with forests subject to
a temporary adverse event? If you disagree could
you please provide your reasons why? What do you
think will be the main impacts of this option for you
or other land owners? If there are other options you
think we should consider please list them.
12. Do you think removing temporary adverse event
emissions liabilities will reduce insurance premiums
and incentivise people to register more forests in the
ETS?

ETS Forestry Consultation 25

2. Proposal for post-1989
forest owners to be able
to “offset” (replant forests
on other sites to avoid
deforestation liabilities)
This is a proposal to introduce
offset forest planting (offsetting)
for forests established after 1989.
The changes to improve the pre-
1990 offsetting rules (to ensure
they can be used more effectively)
would also apply to post-1989
forest offsetting. Doing this would
increase land use flexibility which
could assist the Government to
achieve a range of objectives
(including climate change
adaptation, regional economic
development, environmental
co-benefits, and moving to a low
emissions economy). It could also
increase ETS participation and
consequently afforestation rates
by making the scheme more
flexible.
26 Te Uru Rākau
Option 1 (Status quo):
No offsetting for ETS
forestry participants with
post-1989 forest land.
Currently participants with post-1989
forests cannot offset plant instead
of paying for deforestation liabilities.
Offset planting was introduced for
pre-1990 forests in order to increase
land use flexibility while causing no
net increase in carbon emissions, but
this was not extended to post-1989
forests.
Consultation Questions:
13. Do you agree with the
Option 2 (preferred):
Introduce offsetting for
ETS forestry participants
with post-1989 forest
land who use averaging.
This option means introducing
offsetting for all ETS participants that
are eligible for averaging. Offsetting
would not be made available for
participants on the carbon stock
change (current) accounting
approach. Offsetting allows foresters
to avoid deforestation liabilities if
they establish a forest elsewhere
of equal or greater size in area.
This gives ETS forestry participants
greater land use flexibility and makes
it easy to retain forest cover when
changing land use. It could also
increase ETS forestry participation by
de-risking forestry as an investment
opportunity, particularly under
averaging.
Offsetting can lower the Crown’s
exposure to deforestation in the
ETS by allowing increased use of
the Flexible Land Use (FLU) rule
in national accounting. Land use
flexibility will become an increasingly
important consideration for the
Government for the transition to a
low emissions economy at low cost.
Government’s preferred option
to introduce offsetting for
ETS forestry participants with
post-1989 forest land who use
averaging? If you disagree could
you please provide your reasons
why? What do you think will be
the main impacts of this option
for you or other land owners? If
there are other options you think
we should consider please list
them.
5. Recognising the Emissions Mitigation
from Harvested Wood Products
1.How should New Zealand recognise storage Option 1 (Status Quo):
of carbon in harvested wood products? Do not reflect the
This section considers options for how the Government benefits of accounting for
might be able to encourage further climate mitigation harvested wood products
from harvested wood products (HWP). There is value for to the forestry sector.
New Zealand in incentivising further climate mitigation The status quo reflects historic
from HWP. New Zealand currently claims emissions
international agreements which
mitigation equal to around $16million7 per year for the
did not account for HWP. But
carbon stored in HWP.
New Zealand’s approach to
HWP are products made from timber such as furniture or
accounting for its Paris Agreement
the framing for buildings. These products bring benefits
NDC includes the Crown accounting
to New Zealand by increasing climate change mitigation
for the delayed decay of HWP. So
through continuing carbon storage. They delay the release
of emissions when forests are harvested and the wood the non-recognition of HWP in the
decomposes (and releases emissions) more slowly as the ETS means that unit supply will
carbon is locked carbon in the wood products. Some wood not be aligned with accounting for
products store carbon for a long time and others only store New Zealand’s targets from 2021,
carbon for a few months (e.g. furniture versus paper). and the ETS will not incentivise the
Currently the way emissions units are calculated in right amount of emissions mitigation.
the ETS assumes instant oxidisation of the carbon
removed from the site when trees are harvested. This is
different from how forest carbon is accounted for at the
international level. From 2021 New Zealand’s accounting
approach for forest carbon for its 2030 target under the
Paris Agreement will include recognition of the impact of
HWP. This will be represented as an additional number of
emissions units on top of the long term average units we
will claim for our forests.
We want to hear your views on all of the options for how
to incentivise HWP production and use in New Zealand.
We are not presenting a preferred option. It is possible to
introduce both of the proposed options (2&3), which would
mean that two sectors have incentives related to HWP in
New Zealand.

7 Based on a projection of past HWP trends and a carbon price of $21.

ETS Forestry Consultation 27

Option 2:
ETS participants using
averaging accounting
receive additional NZUs.
The contribution HWP accounting
makes to the international long
term average carbon stock (LTA)
could be added to the average age/
carbon stock of all new forests using
averaging accounting in the ETS. This
would drive ETS unit supply in line
with the new international long term
average carbon stock. This would
also mean that existing forests would
only be eligible to receive recognition
for HWP carbon storage if they are
able to move to the new accounting
approach.
This option would increase ETS
forestry participants’ average
crediting age for their forests.
This would mean amending the
calculation of the average carbon
stored in ETS forests to include
extra units to recognise deferred
emissions from HWP. For a
participant registering 100ha of pine
forest into the ETS these additional
units could be equivalent to 12,000
units or $250,000 (at current carbon
prices) in total, over and above what
they would receive for their forest
under averaging accounting.
Economic modelling indicates that
this would increase ETS forestry
participation, and significantly
increase afforestation. This would
assist New Zealand in meeting its
climate change targets in a way
consistent with how New Zealand
proposes to meet its international
obligations.
It is likely to be too complex to
collect information on individual
participants’ HWP use under this
option, and only ETS participants
would be eligible to receive the HWP
value. So this option is unlikely to
create a strong incentive for the
forestry sector to increase the
proportion of longer-lived wood
products produced.
28 Te Uru Rākau
Option 3: Additional HWP
Create an HWP “industry considerations:
good” wood processing New Zealand will estimate the
contribution of HWP accounting
sector fund. based on past export and
The Government could set aside a domestic data, but actual HWP
pool of funding that is roughly equal activity will occur later after
to an estimate of the contribution harvesting. To address this we
HWP accounting will make to the may adjust the reference level
accounting based on any change
international LTA carbon stock. The
to the projections and account for
funds could be used in an “industry
the actual use of HWP.
good” scheme which aims to support
While this could lead to an
the forestry sector to develop longer-
over allocation of HWP value
lived wood products. This would in
to ETS forestry participants,
turn increase the contribution HWP
the risk could be mitigated by
could make to international targets. transferring a conservative
amount of HWP value which can
This option would either preclude
be adjusted over time.
or limit the use of the funds for
an afforestation incentive, which
would provide a known contribution
towards climate change targets. The
contribution of a fund towards an
increased contribution from HWP is
harder to quantify.
A research and development scheme
should be used to maximise the value
that HWP contributes to international
targets. This means that it should
aim to incentivise longer-lived wood
products, compared with the current
mix of product produced from our
production forests.
Consultation Questions:
14. Out of the three options presented regarding how to pass on
the international harvested wood products accounting benefit
to the NZ forestry sector what is your preferred option? Could
you please explain why it is your preferred option? What do
you think will be the main impacts of this option for you or
other land owners? If there are other options you think we
should consider please list them.
6. Creating a Permanent Forests Category in the ETS
Context
The intent of this proposal is to:
• make permanent forest a more
attractive option for land owners
by making it easier to access the
potential revenue stream from
NZUs;
• simplify the administration of
permanent forests for land
owners and the Government; and
• increase the amount of
permanent forest registered in the
ETS.
The ETS can be used to encourage
the establishment of permanent
forests, which are likely to mostly
consist of indigenous trees or exotic
species which are not harvested
(or on very long rotations). These
forests will assist New Zealand in
achieving its climate change goals,
increase incomes to land owners and
increase the options for land owners
to manage existing forests more
effectively (for example, moving from
rotation forest on erosion prone land
into permanent forest).
Why do we want better
incentives to plant permanent
forests?
Meeting our long term international
climate change commitments will
require New Zealand to increase
the amount of permanent forest
planted and maintained in perpetuity
as a means of sequestering carbon.
Establishing 100,000 hectares of
permanent forests (in the 2020s) will
sequester between 1 and 3 million
tonnes of carbon dioxide per year by
2050 and beyond8.
Where those forests are maintained
they will provide an important carbon
sink in the long term.
Permanent forests provide a wide
range of other environmental
and cultural benefits for local
communities including Mātauranga
Māori. Properly sited forests
contribute to erosion control,
improved water quality and increased
biodiversity. They can also provide
economic benefits, for example
through high value selectively
harvested timber or the production
of honey.
By allowing NZUs to be traced
back to the forest they were earned
from, forest owners will be able to
potentially signal that their units
have higher environmental values
than rotational forest (for example,
by providing enduring habitat for
biodiversity). This could provide an
additional financial benefit for units
from permanent forests.
What are the existing options
to earn units for permanent
post-1989 forests?
At present owners of permanent
post-1989 forest have two options
to earn units: they can join the
Permanent Forest Sink Initiative
(PFSI), or they can register their
8 The lower estimate is based on native forest,
while the upper estimate is for pine forest (such
as retired production forest on erosion prone
land).
forest with the ETS as post-1989
forest. Units from permanent
forests registered with the PFSI are
distinguished from NZUs earned
through the ETS with a “PFSI”
tag in the unit register. Some
PFSI participants have reported
successfully selling their units at a
premium price compared with the
NZU market price.
The PFSI was established under the
Forests Act 1949 in 2007, prior to the
establishment of the ETS in 2008.
PFSI participants must establish
a legal covenant9 over their forest,
which has specific management
requirements, and the details of
how the carbon will be reported
and rewarded. The covenant is in
perpetuity, however, there is an
option to exit after 50 years. The
covenant is the mechanism used by
the PFSI to ensure the permanence
of carbon sequestration by the forest.
The covenant contains the
registration details of the forest and
the obligations on both parties, as
well as much of the operational detail
around how these forests receive
carbon credits. As each covenant
is a separate legal agreement
this represents a considerable
administrative effort for both the
land owner and the Crown. The
requirement for a covenant means
the PFSI registration process is more
onerous than the ETS. In some cases
land owners also have separate
covenants with other agencies,
such as the Queen Elizabeth II
National Trust, which have different
purposes and obligations, which adds
complexity for all parties.
Participation rates for permanent
forest in the PFSI are low compared
to that of native forest in the
ETS. Just over 15,000 hectares is
registered with the PFSI, 80 percent
of which is native. In comparison,
9 A covenant is a legally binding agreement that
is registered on the title of the land.
ETS Forestry Consultation 29
more than twice as much native
forest is registered in the ETS.
Despite increasing carbon prices,
participation rates in the PFSI have
remained static for some years.
MPI conducted two previous
consultations on the PFSI, in 2013
and 2015. The proposals in these
consultations focused on:
• how the PFSI could be better
administered (including moving
it into the CCRA from the Forests
Act);
• how it could attract more
participants; and
• how more marginal land could be
put under long term forest cover.
Feedback from these consultations
provided a strong indication of
stakeholder preferences and
priorities. There was strong support,
especially from current PFSI
participants, for a carbon scheme
relating to permanent forests being
included in the ETS. However,
feedback was not as supportive of the
proposal to no longer use covenants
as they are seen as the signal of
permanence. Some participants
felt that the covenant, as a contract
between the Crown and the land
owner, was an important aspect of
ensuring the PSFI is “permanent”.
Preferred policy approach
A specific permanent post-1989
forest activity (category) in the ETS
would continue to enable units from
permanent forests to be identified
as in the current PFSI. This gives
owners of these units the option
to market them as “high quality”
units while making registration and
administration easier and cheaper
for both participants and the Crown.
Our preferred approach is to
dis-establish the existing PFSI and
create a special category in the CCRA
for permanent post-1989 forests to
earn units in the ETS.
Options for a permanent
post-1989 activity in the
ETS
Providing a pathway for owners of
permanent forest to earn units is
important to improve the incentives
to establish permanent forests.
We have identified four options
and are seeking your input on the
approaches, and where you have one,
your preferred approach.
Option 1:
Keep the PFSI as the
primary mechanism for
permanent forest to earn
units (status quo).
Under the status quo option owners
of permanent forests would continue
to be able to choose either the PFSI
or the ETS to earn units. This option
would maintain the PFSI within
the Forests Act as the primary
Government scheme for incentivising
long term carbon sequestration.
The status quo option does not
address the administrative burden
of the PFSI, or provide permanent
forests registered in the ETS with the
ability to differentiate their units from
rotational forest units.

The Government is looking for

ways to increase the number of
hectares of permanent forests
planted and convert rotational forest
to permanent forest. This means
attracting new participants and
encouraging existing participants
to plant more forests. We are
proposing to make it easier for
owners of permanent post-1989
forest to access a carbon scheme,
and have the additional value of a
permanent forest recognised on
the number of units participants
receive. The challenge is to ensure
that the mechanism is simple to
use for participants, while ensuring
the permanence of the forest is
credible and the units allocated to
participants accurately represents
the amount of carbon stored in
permanent forests.
30 Te Uru Rākau
Option 2:
Retain and improve the
PFSI.
Retaining and improving the PFSI
within the Forests Act would
mean owners of permanent post-
1989 forest still have the ability
to participate in a scheme that
recognises the permanence of their
forest.
However, through two reviews of the
scheme we have not been able to
identify meaningful improvements
within the Forests Act, that would
reduce the administrative burden
which respondents have told us is
a barrier to entering the PFSI. This
is because the Forests Act does not
contain the legal framework that
the CCRA provides for the ETS, so a
covenant is necessary for the PFSI to
operate within the Forests Act.
One option to improve the covenants
could be to include operative parts of
the CCRA into the Forests Act. This
option is unlikely to offer meaningful
benefits as carbon forestry would
still be governed under two pieces
of legislation and require the
development of new solutions to
make the Forests Act and the CCRA
work together (e.g. a post-1989 forest
being re-classified as permanent).
Keeping the PFSI covenant
mechanism (Options 1 and 2) would
make it more difficult to offer other
improvements to PFSI participants
around how forest carbon is
accounted for (which would be
offered to ETS participants), as these
options would need to be reflected in
each individual covenant.
Consultation Questions:
15. Do you agree with the Government’s preferred approach to introduce a new activity into the ETS for
permanent post-1989 forests? If you disagree could you please provide your reasons why? Could you
also tell us how you expect this change will affect you or other land owners?
Option 3:
Discontinue the PFSI
(leaving post-1989 forest
as the only option to earn
units).
Removing the PFSI as an option for
receiving NZUs would limit current
and potential owners of permanent
forests to using the post-1989 forest
option within the ETS to reward long
term carbon storage. This would not
enable owners of permanent post-
1989 forest to distinguish their units
from other NZUs.
This option is unlikely to provide
sufficient incentive to increase long
term carbon storage over and above
what is already being delivered. In
our view, independent recognition of
the additional benefits of permanent
forestry, as well as the longer term
carbon sequestered in their forests,
is an important incentive for land
owners to establish permanent
rather than rotational forestry.
We believe this is most effectively
done by having a mechanism to
differentiate between permanent
post-1989 forest and other post-1989
forest.
Option 4 (preferred):
Establish a new
permanent post-1989
forest activity in the ETS
and discontinue the PFSI.
This option would create a new
permanent post-1989 forest activity
in the ETS as a separate activity to
rotational forest, with conditions that
incentivise afforestation and deter
deforestation. At the same time the
PFSI would be disestablished.
A permanent post-1989 forest
category in the ETS would:
• simplify the long-term crediting
of permanent exotic forest in the
same way as other permanent
forests. This will clarify the option
for land owners to gain a long
term cash flow from rotation
forest being retired to permanent
forest;
• create a single framework for
managing and administering all
forest carbon schemes (the ETS);
and
• enable owners of permanent
forest to trace units from their
forest by tagging each NZU in
the unit registry as coming from
a permanent post-1989 forest
(thus retaining the mechanism
to market their units as having
higher value as currently indicated
through PFSI units);
• allow both exotic and native
forests to be entered as
Permanent Post-1989 forests.
This may raise concerns about the
ETS being used to incentivise large
scale permanent exotic forests.
However, as exotic forests can be
used as establishment and nursery
crops for native trees, and have
greater erosion control benefits
immediately following establishment.
Subject to the design details on the
next page we propose to allow any
forest established on post-1989
eligible land to be registered as a
permanent post-1989 forest.
ETS Forestry Consultation 31
DETAILED DESIGN QUESTIONS FOR INTRODUCING A PERMANENT FOREST CATEGORY IN THE ETS
Summary of questions

1. How would units be earned by forest owners for permanent forests?

2. How will the “permanent post-1989 forest land” and “post-1989 forest land” activities interact in the ETS?

3. What restrictions will apply for permanent forests registered in the ETS?

4. Should we introduce a 50 year permanence clause for forests registering in the permanent forest category?

5. Should we introduce a covenant for forests registering in the permanent forest category?

6. How will we manage the transition for current PFSI participants to a permanent post-1989 forest activity in
the ETS?

7. What is the process for dealing with permanent forests registered in the permanent forest category in the
ETS after the 50 year permanence clause expires?

8. What process could apply for participants to exit the ETS permanent forest category activity prior to the end
of the 50 year on-harvest clause?

9. How should we manage transfers from the ETS category for post-1989 rotation forests over to the ETS
permanent forest category (when the forest is already above average crediting age)?

10. Options for transitioning rotation post-1989 forests in the ETS over to the permanent forest category once
they are past their first rotation.

11. What harvesting restrictions should apply when transferring from Post-1989 forest to Permanent Post-1989
forest?

1. How would units be Option 1: Option 2:

earned by forest owners
for permanent forests?
Under this proposal, the land owner
would receive units for carbon stock
change in their forests, as they do
now. They would continue to earn
units as their forests continue to
store carbon (depending on the
species of trees planted they will
continue to store more carbon for
over 100 years).
Having a separate permanent forest
activity will simplify the ETS for
land owners with permanent forest
compared to the PFSI. The process
to register into the ETS will be the
same as for a post-1989 forest and
the registered area will be clearly
recorded as a different activity
making emissions returns simpler.
Using averaging (as
is proposed in this
discussion document for
rotational forestry in the
ETS).
We do not believe that averaging
would provide the ongoing financial
incentive to establish and maintain
more permanent forests that is
required to increase long term
carbon storage. Averaging would
result in the same number of
units for the participant as simply
registering as a post-1989 participant
in the ETS.
Using the current carbon
stock change accounting
process (preferred).
Using averaging would be
administratively simpler for
Government, however our preferred
approach is to use the current carbon
stock change accounting process
which credits forests as they grow
(and requires repayments of units
if the forest if harvested). This is
because crediting permanent forest
units up to the average does not fully
reward the carbon sink over the 50
year period of the activity. Permanent
forests will continue to accumulate
carbon for more than 100 years as
they continue to mature (before
eventually reaching a steady state of
carbon storage).

Consultation Questions:
16. Do you agree with the Government’s preferred approach to use the existing stock change
accounting process for permanent forests? If you disagree could you please provide your
reasons why? Could you also tell us how you expect this change will affect you or other
land owners?

32 Te Uru Rākau
 2. How will the
“permanent post-1989
forest land” and “post-
1989 forest land” activities
interact in the ETS?
Under this proposal, an owner of
eligible post-1989 forest will have two
options for registering forests in the
ETS: as post-1989 forest land, or as
permanent post-1989 forest land.
Registering as post-1989 forest land
gives the forest owner the ability to
harvest or deregister at any time and
earn units in line with the accounting
rules that apply. Registering as
permanent post-1989 forest land
means the forest owner would not be
able to clear fell harvest or deregister
for 50 years , unless they meet the
conditions for an early exit.
Both activities would share10 a lot of
common operational process around
the ETS, including:
• the process of registration into the
ETS;
• the reporting and unit claim
process for carbon change in the
forests (including the use of the
Field Measurement Approach);
• the monitoring of the forests;
• the exclusion of tree weed species
from registration in the ETS;
• any treatment for natural or
adverse events.
Consultation Questions:
17. Do you agree with the
Government’s preferred
approach that the majority of
the operational processes and
regulations should be shared
between permanent post-1989
and post-1989 forests, with
the key difference being the
non-clear-fell harvest period? If
you disagree could you please
provide the reasons why? Could
you also tell us how you expect
this change will affect you or
other land owners?
10 If a permanent post-1989 forest is
permanently prevented from being re-established
as the result of a natural event (ref CCRA section
189 (8A)).
3. What restrictions will • for the Crown, the monitoring of
the forest will be simpler as our
apply for permanent key concern would be total forest
forests registered in the cover and long term carbon
ETS? stock changes rather than if the
Under the preferred option forest
forest owner has removed 9 or
11 percent, for example, of the
owners who register their permanent
basal area of the living trees.
post-1989 forest will be unable to
clear-fell these forests for 50 years In practice, we believe the increased
after the date of registration (the 50 flexibility (compared to the PFSI) will
year period). While the forest is in not be detrimental to the manner
the 50 year period the forest owner in which permanent forests are
managed because:
would be able to undertake activities
• land owners generally want
which are consistent with the forest
reasonably full canopy cover to
maintaining the 30 percent canopy
promote other outcomes (e.g.
cover as defined in the ETS “forest
erosion control, biodiversity
definition”, e.g. they can selectively
benefits, suppression of weeds in
remove trees.
the understory); and
This approach is practical for the land
• the species likely to be used in
owner and the Crown because:
a permanent forest that may be
• the land owner can manage their
harvested in the future, such
forests without being concerned
as tōtara, are unlikely to be
that transitioning between
economic to harvest prior to the
species (e.g. from exotics to
50 year period expiring.
natives) will inadvertently trigger
a breach of the harvesting
condition; and
Consultation Questions:
18. Do you agree with the restrictions proposed for permanent
forests? If you disagree could you please provide the
reasons why? Could you also tell us how you expect this
change will affect you or other land owners?
ETS Forestry Consultation 33
4. Should we introduce
a 50 year permanence
clause for forests
registering in the
permanent forest
category?
If we progress with the preferred
option of creating a specific
permanent post-1989 forest category
in the ETS, discontinuing the PFSI,
and using carbon stock change
accounting, there are some detailed
design considerations that need to be
taken into account.
How these design considerations
are used will depend on the length
of time forests in the permanent
post-1989 category are not allowed to
harvest. Our preferred approach is to
align the permanent post-1989 forest
category with the existing minimum
timeframe of 50 years in the PFSI.
Te Ture Whenua Maori Act (1993) (The
Maori Land Act) requires additional
considerations should a long term
lease (over 52 years) be granted
over Māori land. We are proposing
a 50 year period for permanent
forests. Permanent forest terms of
longer than 52 years term would
act as a significant barrier to Māori
participation in permanent forest, and
also increase the costs for them to
access carbon revenue as they would
need to comply with these additional
considerations of the Te Ture Whenua
Maori Act (1993).
We have therefore used a 50 year
non-harvest period throughout this
document to signify permanence, but
we are seeking your views on whether
this timeframe is appropriate.
Option 1:
Align the 50 year
permanence timeframe
of the permanent post-
1989 forest to the 50 year
timeframe required under
the PFSI (preferred).
Under the PFSI, participants are
able to remove any part of the forest
sink area from the covenant after 50
years. If any area is withdrawn, the
land owner must repay (surrender)
units for that particular area. If the
participant wants to continue the
permanent forest activity they don’t
need to do anything. We propose to
use the same 50 year limit, with the
option at 50 years to continue with
the permanent forest activity or move
out of it and repay some or all of
the credits received for that area of
forest. A 50 year limit is seen as the
right balance between a participant’s
commitment to permanence, while
not locking land into a carbon
forestry option forever, and allowing
participants to reassess how they will
take part in carbon forestry.
5. Should we introduce
a covenant for forests
registering in the
permanent forest
category?
The CCRA rules around registration
and operational detail would apply
to all participants including those
registered in the permanent forest
category. This makes the relationship
between the Crown and the land
owner much simpler than the
PFSI. The PFSI puts much of the
operational detail into a covenant.
Under the CCRA, any covenant option
for permanent forests in the ETS
would be largely symbolic as the
contractual details and conditions
would be in the CCRA. A covenant
would mean the Crown has an
interest over the land, so would need
to agree new interests being created
(for example a mortgage).
Option 1 (preferred):
Do not offer a covenant
The ETS, through the CCRA, provides
the legal framework required to
enable the crediting of a permanent
forest and to ensure its permanence
with strong enforcement provisions.
This will simplify the administration
of a permanent post-1989 activity
and will not lock land into the
ETS forever. Land owners whose
indigenous forests are of sufficient
quality to be eligible would be free
to sign up to a covenant offered by
organisations such as the Queen
Elizabeth II National Trust, regional
or district councils, Nature Heritage
Fund, or Nga Whenua Rahui
(for Māori land), provided they meet
the conditions of these organisations.

Consultation Questions:
19. Do you agree that 50 years
is an appropriate non-harvest
period for ETS registered
permanent forests? If you
disagree could you please
provide the reasons why?
Could you also tell us how you
expect this change will affect
you or other land owners?
Consultation Questions:
20. Do you agree with the Government’s preferred option of not
offering a covenant for permanent forests registered in the
ETS? If you disagree could you please provide the reasons
why? If there are other options you think we should consider
please list them.
21. What assistance could the Government offer to make it easier
for indigenous forest to be registered in a covenant from other
organisations (e.g sharing mapping information)?

34 Te Uru Rākau
Option 2:
Offer a voluntary minimal
covenant
This option would be to offer a
minimal covenant that the participant
could take up. This covenant would
reflect the land owners’ commitment
to establishing a permanent forest (in
line with the CCRA definition of this),
and also the CCRA as the primary
regulatory tool for these forests. Any
covenant under this approach would
be optional.
6. How will we manage
the transition for current
PFSI participants to a
permanent post-1989
forest activity in the ETS?
Current PFSI participants, and
the land subject to the PFSI, could
automatically be registered under
the CCRA as Permanent Post-1989
forestry. However, the desire to
transfer across to Permanent Post-
1989 forestry will differ among land
owners. Automatically transferring
participants may result in current
participants withdrawing.
Conversely, maintaining the PFSI
in its current form for only a few
participants who wish to remain
would undermine the advantages of
having one approach to permanent
forests, and increase costs to land
owners and the Crown.
Our preferred approach is to transfer
existing PFSI participants to the new
permanent post-1989 forest activity
in the ETS, or allow them to exit the
scheme entirely.
Option (preferred):
Transfer is mandatory
with one-off option to
leave the scheme.
We propose that the transfer be
mandatory with a one-off option to
leave the scheme by repaying any
units received11. The transfer of
current participants will be done
through a transfer document to
gather any relevant information
needed for the ETS, without any
administrative cost to participants,
and the forest land will not be
subject to any reassessment of
land eligibility. We would propose to
backdate the non-harvest period for
these transferred forests to the time
when they joined the PFSI.

Consultation Questions:
22. Do you agree with the Government’s preferred
option that transfer for current PFSI participants
to a permanent post-1989 forest activity in the
ETS should be mandatory with a one-off option to
exit? If you disagree could you please provide the
reasons why? Could you also tell us how you expect
this change will affect you or other land owners?

11 In line with that land owner’s existing

covenant.

ETS Forestry Consultation 35

 7. What is the process for
dealing with permanent
forests registered in
the permanent forest
category in the ETS after
the 50 year permanence
clause expires?
Option:
During the non-harvest period, the
forest must remain as forest land in
the ETS for the full time (50 years
under the Crown’s preferred option),
and cannot be clear-fell harvested
within this timeframe. However,
once the 50 year non-harvest period
expires forest owners will have three
choices:
a) Remain in the permanent post-
1989 forest category: by signing
up for another non-harvest
period (e.g. 25 or 50 years), and
continuing with the stock change
accounting approach they have
used to date.
b) Switch to the post-1989 forest
category: allowing them to
harvest, but changing to an
averaging accounting approach
if this proposal is adopted. They
would need to repay units for the
difference between the current
carbon stock for the forest and
the average carbon stock for that
forest type as a post-1989 forest.
c) Exit (deregister from) the ETS (and
either keep the forest or deforest)
and repay all units received.

Consultation Questions:
23. Do you agree with the Government’s three choices for dealing
with permanent forests registered in the ETS when the 50-year
permanence clause ends? If you disagree could you please
provide the reasons why? If there are other options you think we
should consider please list them.
24. Do you agree whether there should be an option to sign-up for
another non-harvest period? If you do agree could you please
state how long this should be and why.
25. Do you agree that a retrospective averaging approach is the
best way to allow forests to be harvested after 50 years? If you
disagree could you please provide the reasons why?

36 Te Uru Rākau
8. What process could
apply for participants to
exit the ETS permanent
forest category activity
prior to the end of the 50
year non-harvest clause?
If we establish a Permanent Post-
1989 forestry activity, clear conditions
to exit prior to the 50 year non-
harvest period expiring must be
outlined in the CCRA. We propose
that any exit option will require
complete deregistration from the
ETS, and the full surrender of the
NZUs received for that forest land.
We believe allowing for exit is likely
to lead to an increase in uptake, but
allowing an exit which is too easy
would undermine the integrity of the
permanent post-1989 activity.
Currently, if a PFSI land owner
withdraws after 50 years, they need
to repay the units for the area of
forest being removed. If they want to
terminate early (and they only can do
this in limited situations) they must
repay the units they have received12.
They require the Crown’s agreement
to do this. Unless they meet certain
conditions for exemption, they
must surrender units for the loss of
carbon.
We have identified a range of options
for participants wanting to exit the
permanent forest category.
12 (as per covenant).
Option 1: Option 2:
Repayment of units along Cancellation only under
with a unit multiplier (or a certain conditions.
specific fee per unit). Cancellation can only take place
Allowing a participant to exit the under circumstances, defined in
activity would require repayment of legislation, which could not have
units earned as well as a penalty reasonably been foreseen at the
fee of additional units. They would time of registration, and where the
be calculated at a compounding participant’s ability to access the
rate applied to each year’s increase value of carbon sequestration in their
permanent post-1989 forests are
in carbon stock from the beginning
of the covenant (e.g. after seven significantly affected.
years at a compounding rate of
This option is consistent with the
10 percent the unit multiplier would
intention of limiting participants
be two, so participants would need to
exiting unless it would be unfair to
surrender twice the carbon earned
require the participant to remain
in the seventh year). This would act
registered.
as a significant disincentive to exit,
particularly late in the non-harvest
period. However, this “penalty”
option could be an unfair option for
participants who need to exit the ETS
for bona fide reasons and may act as
a strong disincentive to establishing
permanent forests.
ETS Forestry Consultation 37
Option 3:
Two-step test.
An alternative to option 2 is the
requirement for the Minister for
Climate Change to apply a two-step
test, as defined in legislation. The
first step seeks to provide some
flexibility and the second stage of
this test seeks to limit the application
of the discretion in favour of the
applicant.
For example, if it would be
unreasonable in the circumstances
to require the participant to maintain
registration in the scheme then
considerations should include:
• Whether a decision to remove the
land from the permanent forest
category in these circumstances
would be likely to result in a
loss of public confidence in the
integrity of the scheme?
• What is the cost to remove the
land from the ETS, and where
does this fall?
• What are the benefits and costs of
this land not being in permanent
forest, and who receives the
benefits and who pays the costs?
Consultation Questions:
26. Out of the three options
presented for participants to
exit the ETS permanent forest
category prior to the end
of the 50-year non-harvest
clause which do you prefer?
Could you please explain
below why it is your preferred
option and how this will affect
you or other land owners? If
there are other options you
think we should consider
please list them.
38 Te Uru Rākau
9. How to manage
transfers from the ETS
category for post-1989
rotation forests over to
the ETS permanent forest
category (when the forest
is already above average
crediting age).
The transfer of forests from Post-
1989 forestry to Permanent Post-
1989 forestry is simple, if the forest
is below the average age, as the
number of units earned will continue
(but no longer stop at the average).
However, if a forest is transferred
after the average age the participant
potentially loses the ability to claim
units between the average age
and the forest’s current age when
it makes the shift to a permanent
forest.
Allowing participants to earn units
when forests are transferred above
the average age could potentially
result in considerable increases
in movement from Post-1989 to
Permanent Post-1989 forestry to
gain substantial one-off units. This
effect could be magnified if projected
increases in carbon prices occur. A
substantial number of participants
moving could also result in greater
fiscal costs to the Crown, and reduce
timber supply.
Option (preferred):
Participants who transfer
are only able to gain
units from the start of
the Mandatory Emissions
Return Period (MERP).
It is recommended that participants
who transfer to Permanent Post-
1989 forest are only able to gain
units back from the start of the
MERP at the time they transfer.
This is effectively the case with new
ETS registrations for post-1989
forests, and the current approach to
crediting.
The NZUs received while the forest
was a post-1989 forest would be
retained, and would only need to be
repaid if the forest is removed from
the ETS or the carbon stock drops
significantly and the forest owner is
liable for that change13.
Consultation Questions:
27. Do you agree with the
Government’s preferred option
for participants who transfer
to permanent forests to only
earn units from the start of
the MERP during which the
move to permanent forest
is made? If you disagree
could you please provide the
reasons why? If there are
other options you think we
should consider please list
them.
13 Sections 190 and 191 for the CCRA limit
the number of units that need to be repaid for a
carbon accounting area (or part thereof) to the
number received for that CCA.
10. Options for transitioning
rotation post-1989 forests
in the ETS over to the
permanent forest category
once they are past the first
rotation.
The way in which an existing forest
on the second rotation is registered
into Permanent Post-1989 will have
implications for forests both inside and
outside the ETS. On page 22 there is
a discussion of how second rotation
forests will be treated under averaging,
and it is proposed that the option for
second rotation permanent post-1989
forest be closely linked to the decision
taken under averaging.
Allowing second rotation forests that
are registered as permanent forests to
earn units will provide an incentive to
retain these areas as forest. Crediting
the carbon stock for these forests
from the date they are registered as
permanent forests will be particularly
important for those areas where
production forestry is no longer viable
(e.g. on very highly erodible land).
Registering the forest as a permanent
forest will provide cash flow to the land
owner instead of a harvesting income.
However, we need to consider how this
transition will work.
It is proposed that forests outside the
ETS would earn units for the carbon
stock change back to the start of
the MERP when they register for the
permanent post-1989 activity.
Forests already registered in the ETS,
and subject to the carbon stock change
accounting approach, would earn units
for the carbon stock change back to the
start of the MERP when they register
into the permanent post-1989 activity.
These forests would have earned units
as a post-1989 forest up to the carbon
stock when they decide to change to
permanent post-1989 forest.
For forests already registered in the ETS
that are subject to averaging there are
two possible cases:
• Where a forest is in its second rotation
and carbon stock is above the average.
These forests would be treated in line
with the first rotation forests in topic
• Where the carbon stock is below the
average there are two options.
Option 1 (preferred):
Repay the units between
the current carbon stock
and the average.
The more costly option for the
participant would require that
they surrender units equal to the
difference between the current
carbon stock and the average14 when
it transitions from the Post-1989
forestry activity to the Permanent
Post-1989 forestry activity. This
would apply if the current carbon
stock is below the average.
Option 2:
Don’t earn units until the
carbon stock reaches the
average.
A more administratively complex
option would be for the land to not
earn units until the carbon stock
reaches the average that applies for
that area of forest. Once that point is
reached, the forest earns units.
14 Section 190 of the CCRA would apply to
this repayment, meaning the forest owner would
pay no more units than the current unit balance
for that Carbon Accounting Area or sub-area of
forest
Consultation Questions:
28. Do you agree with the
Government’s preferred option
regarding transitioning rotation
post-1989 forests in the ETS
over to the permanent forest
category once they are past the
first rotation? If you disagree
could you please provide the
reasons why? If there are other
options you think we should
consider please list them.
11. How long should
harvesting restrictions
should apply when
transferring from Post-
1989 forest to Permanent
Post-1989 forest?
Participants moving from Post-1989
forestry to Permanent Post-1989
forestry would generally benefit most
if the harvesting restrictions (50
years) start from the initial date they
registered their forest with the ETS.
However, allowing participants
to have harvesting restrictions
commence from the initial date of
registration in post-1989 forest could
potentially undermine the integrity of
permanence of the permanent post-
1989 forest activity and they would
not have the same 50-year non-
harvest period as other participants.
Applying harvesting restrictions from
the date of transfer would signify
the participant’s commitment to
permanence.
Option (preferred):
Harvesting restrictions
are applied from the
date of registration as
a permanent post-1989
forest.
We are proposing that harvesting
restrictions should be applied from
the date of transfer into Permanent
Post-1989 forestry, as this indicates
when participants fully committed
their forests to permanence.
Consultation Questions:
29. Do you agree with the
Government’s preferred
option that harvesting
restrictions are applied
from the date of transfer
to permanent post-1989
forest? If you disagree could
you please provide the
reasons why? If there are
other options you think we
should consider please list
them.
ETS Forestry Consultation 39
7. Operational Improvements to the ETS
This section deals with proposals for operational improvements aimed at reducing the complexity of the forestry sector
parts of the ETS. They are also expected to make voluntary and mandatory compliance easier. The proposals relate
to all forests regardless of whether they use the current (carbon stock change) approach, the proposed averaging
approach, or take the proposed permanent forest option. Many of the proposals have been developed from the feedback
based on 2015/16 review of the ETS, and others from Te Uru Rākau’s administration of the scheme and interaction with
participants.

Twenty six operational improvements have been identified that would help solve problem areas for forestry in the ETS and
provide the administrators with new tools to resolve emerging and unexpected issues as they arise.
These operational changes are divided into three groups:
1. Significant changes (five proposals) that will positively impact investment decisions in forestry, improve the
ETS for a large numbers of forest owners, or require regulations to be developed at a later date after the Act is
amended.

2. Operational changes (four proposals) where final policy decisions will be tied closely to decisions on the way an
averaging accounting approach may be introduced.

3. Minor and technical changes (17 proposals) to improve areas where the legislation creates uncertainty for
participants, is not working in line with the policy intent, or is contradictory. These proposals should result in
participants making fewer inadvertent errors and improve their compliance with ETS obligations.
This will also have associated administrative benefits for Te Uru Rākau.

SIGNIFICANT OPERATIONAL CHANGES The Act currently allows the EPA to make rulings on
determining the classification of forest land (or eligible
1. More certainty on land classification forest land) under the ETS. We propose to provide greater
• Clarify the existing rulings regime in the Act so
certainty on land classification by developing definitive
that definitive classifications of land status can
maps (with Geographic Information Systems (GIS) spatial
be made.
layers). We anticipate that these layers would describe:
• Amend the Act to allow land status to be defined
• pre-1990 forest land;
by reference to maps held by Te Uru Rākau.
• post-1989 forest land;
• land eligible to be registered as post-1989 forest
Context:
land (subject to being established in forest species
Currently those who want to buy or convert land, forested
sufficiently to meet the statutory definition of “forest
or not, can’t check whether it is eligible to be ETS
land”).
registered until it is established in forest and an ETS
registration application is made. These maps would be closely linked to existing data sets:
• already publicly available information (e.g. the fact land
In the five years between 2013 and 2017 MPI rejected
is ETS registered is currently listed on land titles but
an average of 20 percent of the area in applications as
not in a useful way to facilitate investment decisions);
ineligible for post-1989 forestry. This is time consuming
• the maps used in New Zealand’s international
for land owners and officials, and is also a barrier to
reporting of greenhouse gas emissions and removals,
investment in carbon forestry, as it increases uncertainty
ensuring alignment with international emissions
on land eligibility.
accounting.
Owners of forest land considering deforestation or sale
would also benefit from clarity on whether their land
would be classified as pre-1990 forest land.

40 Te Uru Rākau
Next steps:
Should this proposal be agreed,
regulations would be developed, and the
Consultation Questions:
public consulted, to support definitive 30. Do you agree that publicly available maps
land classification by the Crown through are the best way to provide more certainty
published maps. Developing these on forest eligibility in the ETS? If you agree
maps will require investment from the could you please list how much information
Crown, and will take time to deliver, but the map should contain (e.g. just land
eligibility, unit balances etc). If you disagree
would be a considerable improvement
could you please provide the reasons why?
for ETS participants.
31. Would you be comfortable with your
information on the maps being publicly
Benefits: available?
The public will know what land is
currently defined as pre-1990 or post- 32. How would you see the information in
1989 forest land, and which land would these maps interacting with other publicly
available maps?
be eligible to be registered as post-1989
forest land if established in forest. This
would enable awareness of any ETS
impacts on land ownership, and remove
a barrier to investment in new post-
1989 forests.

ETS Forestry Consultation 41

2. Options for improving the
deforestation offsetting process for pre-
1990 forests.
We consider the current offsetting implementation
process could be improved and made more flexible
by:
• extending the timeframe for all users of
offsetting to up to four years after clearance15
or the application is approved. This provides
a standard timeline for all forest owners,
independent of what is happening with the forest
land.
• creating the ability to redefine the areas the
application applies to, while it is live. The forest
owner will be able to adjust the pre-1990 area to
be deforested and the proposed offsetting area
within a single application (to allow for changes
in deforestation intent and forest establishment
success).
• allowing the ability to carry-over “unused” offset
forest between sequential applications (e.g. if a
participant were to plant 20 hectares more than
they needed, it could be counted against the
next application).
• making clear that only the deforestation not
covered by the new forest requires that units be
surrendered (moving away from the current “all
or nothing” approach).
• technical fixes to clarify land status and other
drafting.
Consultation Questions:
33. Do you agree with the options for improving the
deforestation offsetting process for pre-1990
forests? If you disagree could you please provide
the reasons why? If there are other options you
think we should consider please list them.
34. Have you considered using the current offsetting
rules for pre-1990 forest? If so did you face
barriers to using offsetting and could you list
them?
15 Note that clearance is different from conversion. This four years would
apply provided the land remains forest land or is temporarily unstocked.
42 Te Uru Rākau
Context:
Pre-1990 forest offsetting was available in the ETS from
2013 to reduce the cost of converting pre-1990 forest land
to other uses, by allowing a forest of equivalent area and
carbon stock to be planted elsewhere.
Providing pre-1990 forest offsetting to the owners of
plantation forests is useful to land owners as it enables
them to move forests from where they were suited
in the past to locations where they are more suited
now. For example, a farmer may have brought part of
a neighbouring property and the forest planted by the
previous owners would better fit into farm management
plans if it was moved to a new part of the farm. Offsetting
would reduce the cost of making this change, and aid
the farmer in complying with wider environmental
commitments.
Since 2016 a number of applications have been approved,
but concerns have been raised that the current rules are
inflexible which significantly increases the risk to land
owners using this rule. This inflexibility results from the
following:
• There is no ability to amend the areas to be deforested
or planted after an application is approved (e.g. this
would be necessary if parts of the land planned for
conversion to pasture are found to be unsuitable after
the pre-1990 forest is harvested).
• The exact and entire offsetting area must be
successfully planted in sufficient forest species to
qualify as forest land. The risk is that tree seedlings
may fail in parts of the area and, even if they are
replanted, the whole area may not establish. The
need to establish the entire forest means land owners
cannot undertake a sensible risk mitigation option of
“plant a bit extra” as this would be considered part of
the area that needs to be established.
• Within the statutory two year timeframe if any of the
deforested land is converted, conversely if the land is
not converted, there are four years to do this.
• If any part of the offsetting application fails the entire
application is revoked with participants exposed to
significant financial risks as they must surrender
NZUs for the full carbon liability for all deforestation
(currently around $13,000 per hectare at $20 per/NZU,
and any penalties applied). Failing to establish 0.2
of a hectare of new forest would mean the pre-1990
forest owner would be liable for all deforestation in a
100 hectare application ($1.3 million).
Benefits:
Making these changes will provide land owners with
more flexibility in applying the offsetting regime to
their particular circumstances. It also strikes a balance
between flexibility for the land owner to manage their land
for most appropriate land uses with the Crown’s ability to
ensure the integrity of NZUs and the ETS.
3. Improving the tree weed deforestation The ETS provides for the deforestation of pre-1990 forest
exemption process for pre-1990 forests. land to be exempted from deforestation emissions where
the forest species is a tree weed. This reduces a land
We propose to put the majority of operational detail owner’s cost of controlling tree weeds.
(e.g. timelines for the removal of the tree weeds)
However, current operational settings are a barrier
into the regulations. This will make it easier for the
to effective tree weed management as the exemption
Crown to update the rules to ensure they remain fit
process is highly prescribed and has limited flexibility.
for purpose. We also propose to allow areas of
pre-1990 forest that have received a Forest Also, exemptions can’t be applied for pre-1990 tree weed
Allocation Plan allocation of NZUs to be able to forest land that received an allocation of units under the
apply for an exemption. Forestry Land Allocation Plan. This prevents the effective
control of these forests across large areas (e.g. there may
Context: be an area ineligible for the exemption in the middle of a
The spread of wilding coniferous trees, or tree weeds, wider exempt area).
is a significant environmental and conservation issue in
Operational changes have been identified that will
New Zealand. Wilding conifers cover more than 1.8 million
reduce unnecessary processes, and make it easier for
hectares of land (6.7 percent of New Zealand’s land area)
land owners to obtain an exemption and comply with its
and are spreading at an estimated rate of five per cent per
conditions.
year.
Areas of tree weeds that are post-1989 forest cannot be
Wilding conifers are trees that:
registered into the ETS. This means they are not eligible
• produce cones instead of flowers;
to earn carbon credits, and have no deforestation liability
• are not indigenous to New Zealand;
if removed.
• begin growing through natural spread – seeds are self-
sown by the wind; and
• are growing outside managed conifer plantations (pine Benefit:
and fir forests). To simplify the tree weed exemption process so that the
eradication of tree weeds is not constrained.
In the wrong place they are a major threat to our
ecosystems, land and farms. They compete with native Without these changes existing pre-1990 tree weed
plants and animals for sunlight and water, and can exemption provisions will continue to limit, or impose
significantly alter natural landscapes. unnecessary costs on, efforts to manage tree weed
spread. This will lessen the long-term effectiveness of
In the CCRA, tree weeds are trees that are defined or
management and eradication programmes.
designated as either a pest, in a pest management
strategy under the Biosecurity Act 1993, or a tree weed
listed in the Climate Change (Forestry Sector) Regulations
2008.

Consultation Questions:
35. Do you agree with the proposal to
improve the tree weed deforestation
exemption process? If you disagree could
you please provide the reasons why?
If there are other options you think we
should consider please list them.
36. Have you attempted to control tree weeds
on your land and, if so, did you face any
barriers? Could you please include any
suggestions for how the process could be
made easier?

ETS Forestry Consultation 43

4. Exemptions for less than 50 hectare
blocks of pre-1990 forest land.
It is proposed that where land was multiply-owned
on 1 September 2007, the current professional
trustee or trustees (who may have been appointed at
any time), may apply for an exemption for pre-1990
forest land contained within that land title, provided
that the area of pre-1990 forest land contained in the
title was less than 50 hectares on 1 September 2007.
It is proposed to use the title, rather than the trustee
for the less than 50 hectares test as trustees often
sit on multiple trusts. We are, however, uncertain on
how to provide a definition of multiply-owned land
that can be applied to all land owners, and seek your
view on what this threshold should be.
We also propose to extend the ability to apply for an
exemption to any agent appointed by the Māori Land
Court (under Te Ture Whenua Māori Act 1993).
All other conditions will remain the same (e.g. land
that has received forest allocation plan units will be
excluded).
Consultation Questions:
37. Do you agree that a generic threshold for using exemptions for less than 50 hectare blocks of pre-
1990 forest land should be 10 owners on 1 September 2007? If you disagree could you please
include what number of owners you would set it at and why?
38. Do you agree that any subsequently appointed trustee or agent should be able to apply for the above
exemption (provided it has met the statutory requirements under Te Ture Whenua Maori Act 1993)? If
you disagree could you please provide the reasons why? If there are other options you think we should
consider please list them.
44 Te Uru Rākau
Context:
Since 2012, people who owned less than 50 hectare areas
of pre-1990 forest land have been able to apply for the
land to be declared exempt from deforestation liabilities.
The purpose of this exemption was to exempt the many
owners of small blocks of pre-1990 forest from having
to comply with the ETS, and to reduce the Government’s
administrative burden.
The likely emissions from the deforestation of small
holdings was expected to be very small in relation to
the expected total deforestation emissions. To date
exemptions have been granted to around 16,500 hectares
of forest.
In each application the forest area also had to be owned
on 1 September 2007 by a person or persons who, along
with any associated person, signed a statutory declaration
that they owned in total less than 50 hectares of pre-1990
forest land. The applications had to be signed by all legal
owners of the land on 1 September 2007. Part of the
reasons these conditions were put in place was to manage
the risk that land owners would change their ownership
structures to access the exemption.
Meeting these conditions has been a challenge when
blocks of land have many legal owners, particularly Māori
freehold land under Te Ture Whenua Māori Act 1993
where there may be more than 200 owners. This is mainly
because the ownership record may not be up to date, and
it may be difficult to locate and contact all the registered
title owners. This led to some blocks being unable to get
an exemption.
It is recognised that for Māori freehold land, there are two
cases where the land was multiply-owned on 1 September
2007 but where an exemption may be more easily applied
for as the situation has changed:
• The land owners have appointed trustees after
1 September 2007, having complied with the
requirements of the Te Ture Whenua Act 1993.
• Where the land remains outside a trust, but an agent
has been appointed by the Māori Land Court (under Te
Ture Whenua Māori Act 1993).
Benefit:
To allow owners of “less than 50 hectare” blocks of pre-
1990 forest land who were unable to practically obtain an
exemption in 2012, to now be eligible for an exemption.
5. A simpler process for Section 60
exemptions.
We propose that the legislation makes it explicit that
section 60 exemptions can be granted for activities
which occurred prior to the Order in Council. For
forests, these exemptions cover the deforestation of
pre-1990 forest land.
Section 60 exemptions are often granted after
deforestation has already occurred. While it is
acceptable to apply the section 60 exemptions to
deforestation events that have already occurred
in certain circumstances, this part of the CCRA is
quite ambiguous. This can create challenges when
drafting the Order in Council to give effect to the
Minister’s decision.

Context:
Section 60 is a provision in the CCRA which allows for
an exemption to be granted from ETS obligations, under
certain circumstances. This process requires the Minister
for Climate Change to be satisfied that certain conditions
are met, and allows a participant to be exempted from
some or all of an activity and not have to surrender the
emissions liabilities. These conditions include the Minister
being satisfied or having regard to:
• the exemption being granted does not materially
undermine the environmental integrity of the ETS;
• the costs not exceeding the benefits of granting the
exemption; and
• the alternatives to the exemption.

Benefit:
To provide quicker resolution and greater certainty to
pre-1990 forest land owners about what their obligations
may be.

Consultation Questions:
39. Do you agree with the proposal for a simpler
process for Section 60 exemptions? If you
disagree could you please provide the reasons
why? If there are other options you think we
should consider please list them.

ETS Forestry Consultation 45

OPERATIONAL CHANGES INFLUENCED BY AVERAGING
1. Redefining Mandatory Emission Return 2. Deforestation offsetting for post-1989
Period forests
We propose that a shorter Mandatory Emissions
Return Period (MERP) of three years is set to bring
Context:
the ETS into alignment with our international
To provide greater land use flexibility, and help make ETS
reporting. This shorter “mini-MERP” would
be designed to reduce the cost on the forestry participation more attractive, deforestation offsetting could
participant (e.g. owners with more than 100 hectares also be made available for post-1989 forests.
of forest would not be required to undertake the Field Currently owners of post-1989 forest land can voluntarily
Measurement Approach for this return). The timing of remove their land from the ETS, or if they deforest they
the mini-MERP (2018-2020 or 2023-2025), would be
must deregister and remove the land from the ETS. In both
driven by the timing of the introduction of averaging
cases they have to then surrender the NZU balance of the
(if introduced). A Mini-MERP ending in 2020 would
make averaging simpler to introduce from 2021. affected land.

Under the current carbon stock change accounting regime,

Context: deforestation offsetting is unlikely to be attractive because
The Act defines the MERP as the first Kyoto Protocol forest owners will generally deforest after harvesting when
Commitment Period (2008-2012), the five-year period the unit balance is zero or low.
beginning 1 January 2013 and each subsequent five-year
But under the proposed “averaging accounting” regime,
period after that.
where a unit balance equal to the level of long-term
ETS post-1989 participants have the following average carbon stock would have to be surrendered if the
responsibilities linked to MERPs: land is deforested after harvest, offsetting would be more
• they must submit a Mandatory Emissions Return (MER) attractive as planting an equivalent forest is likely to be a
once every period; and cheaper option.
• Field Measurement Approach16 (FMA) participants
More flexible land use could increase competition for, and
must collect forest data once every period so that
the price of, suitable forestry land. But the demand for
a participant specific carbon lookup table can be
offsetting land is expected to be only a small proportion of
generated for use in the mandatory return.
the total land available for afforestation.
The current MERP concluded in 2017, with the third MERP
scheduled to run between 2018 and 2022. However the Benefit:
current MERP isn’t aligned to New Zealand international To make ETS participation more attractive and to provide
emission reduction targets (both 2020 and 2030 targets). greater land use flexibility.
Some options for the introduction of averaging require
the participants and the Government to know the carbon
stock in post-1989 forests. As this information is gathered
and reported to Te Uru Rākau at the end of the MERP,
introducing averaging once this has happened will probably
be simpler.

Benefits:
These changes will align MERPs to New Zealand’s
international emission reduction targets, and to the
Consultation Questions:
proposed introduction of new forestry carbon accounting
rules. 41. Are you comfortable with the operational detail for
post-1989 offsetting being largely the same as
Consultation Questions: pre-1990 offsetting?

40. Do you agree that a mini-MERP is the best
way to align participants’ ETS obligations
with New Zealand’s international emissions
targets? If you disagree could you please
include what alternatives to a mini-MERP you
would propose?
16 Post-1989 forestry participants who have registered 100 hectares or more
are subject to the Field Measurement Approach.
46 Te Uru Rākau
42. Which yield table do you think should be used to
define the carbon equivalence of the new forest?
43. Should the land the new (offset) forest is planted on
be differently recorded from pre-1990 forest offset
land? If so could you tell us why? Could you also
include if you have any other input regarding this
proposal.
3. Extending section 60 exemptions to
post-1989 forest land
The proposal is to allow the application of section 60
to post-1989 forest land that is subject to averaging
accounting, and permanent post-1989 forest land.
Context:
Section 60 is a provision in the CCRA that allows
for exemptions to be granted from mandatory ETS
obligations. To grant an exemption, the Minister for
Climate Change must be satisfied certain conditions are
met, and consider a number of factors in their decision.
Under certain conditions Section 60 of the Act allows
the Minister to recommend that the Governor General
grant exemptions from ETS liabilities. It’s used when
costs to participants are disproportionately against the
intent of the ETS. So far there have been three forestry
applications.
Each case application is considered on its own merits
and the Minister must be satisfied that the order will not
materially undermine the environmental integrity of the
ETS and that the costs don’t exceed the benefits.
Section 60 currently applies to Schedule 3 activities, but
doesn’t cover Schedule 4 activities i.e. post-1989 forests.
These forests can also be affected by unanticipated
issues, so there is an opportunity to extend section 60 to
include them.
Benefit:
To allow post-1989 forestry participants to be eligible for
exemptions under section 60 for unanticipated events.
Consultation Questions:
44. Do you agree with extending Section 60
exemptions to post-1989 forest land? If
you disagree could you please provide the
reasons why? If there are other options
you think we should consider please list
them.
4. Cost recovery
The proposal is that powers are included in the
CCRA to allow the cost recovery framework to be
extended to all relevant parts of the ETS.
The details of the cost recovery settings, including
testing with the sector, would be developed once the
detailed decisions on accounting are made.
Context:
Currently, the administering agencies recover some
of their costs from ETS participants, however the cost
recovery regime is inconsistent and incomplete. An
example of this is the recovery of Te Uru Rākau’s costs of
assessing land for pre-1990 forest offsetting applications
and post-1989 forest registration. Both of these provide
a benefit to the forest owner17, and require land to be
assessed to the similar standard, and to similar criteria.
Pre-1990 forest offsetting is free, while post-1989 forest is
partially cost recovered.
Benefit:
To appropriately allocate the costs of operating between
the Government and the forestry sector.
17 Land users using the pre-1990 forest offset option face a lower cost of
deforestation as they convert land uses, while post-1989 forest owners earn
income from the carbon stored in their forests.
Consultation Questions:
45. Do you agree with the proposed change
to extend the cost recovery framework? If
you disagree could you please provide the
reasons why? If there are other options
you think we should consider please list
them.
ETS Forestry Consultation 47
MINOR AND TECHNICAL PROPOSALS
1.Simplifying transfers of post-1989
forest
It is proposed to treat executors of wills as if they
were the registered participants of the land subject
to the wills.
Context:
When post-1989, ETS registered forest land is transferred,
such as being sold, ETS participation transfers to the
new land owner or forestry right/lease holder. There
are various forms of transfer, collectively termed
“transmissions of interest” under the CCRA.
Whenever there is any change in legal ownership
(except when less than 40 percent of the members of an
unincorporated body change), the parties involved must
notify the EPA and submit an emissions return within 20
working days18 of the date of transfer.
Compliance with these requirements is currently low
which results in Te Uru Rākau trying to find a way to
complete the transfer and comply with the CCRA. This is
expected to be improved using measures such as targeted
guidance to professionals involved in land transactions
and trust management.
A way to simplify the transfer process would be to
treat executors of wills as if they were the registered
participants of ETS registered land subject to the wills.
This would remove the unnecessary step of Te Uru
Rākau registering executors as participants. The transfer
of participation would be recorded when the land is
transferred to the will beneficiary.
Benefit:
To simplify the process for transferring post-1989 forest
land, and reduce compliance costs for participants and
administrative costs for Te Uru Rākau.
18 http://www.legislation.govt.nz/act/public/2002/0040/latest/DLM1662782.html
Consultation Questions:
46. Do you agree with the proposal to treat
executors of wills as if they were the
registered participants? If you disagree
could you please provide the reasons why?
If there are other options you think we
should consider please list them.
48 Te Uru Rākau
2. Interested parties notification when
land is added or removed
It is proposed that a more efficient process for
updating contact details would be for participants,
rather than the EPA, to notify interested parties
when participants add or remove land.
Context:
If a land owner is a post-1989 forestry participant,
the holder of a forestry right, or lease over the land is
considered to be an interested party under the CCRA.
Similarly, if a forestry right or lease holder is the
participant, then the land owner is an interested party.
When a participant adds or removes land then the EPA
must notify the interested party.19 However, interested
parties are not required to notify the EPA if they change
their contact details which means Te Uru Rākau must find
the new contact details of interested parties when needed,
which can be difficult and time consuming.
Benefit:
The proposed change is more efficient and is in the
commercial interests of both parties.
19 http://www.legislation.govt.nz/act/public/2002/0040/latest/DLM1662781.html
(6 and 7).
Consultation Questions:
47. Do you agree with the proposed change
for the notification of interested parties?
If you disagree could you please provide
the reasons why? If there are other
options you think we should consider
please list them.
3. Reconfiguration of carbon accounting
areas
Provide a new process in the Act that allows
reconfiguration of carbon accounting areas (CAAs)
without cost to a participant.
Context:
Post-1989 ETS participants are allowed to reconfigure
(subdivide or merge) their CAAs. Currently if CAAs are
removed and the same land re-registered within 20
working days, the participant must surrender the units
that have been issued to the land. They can then only
regain units issued in the current five year emissions
return period. If the land was registered in a prior five-
year period, the participant does not regain the same
amount of units that were surrendered.
If averaging accounting is implemented, participants
may wish to reduce their number of CAAs, because the
“liability cap20” applies at a CAA level i.e. emissions from
harvesting in a CAA are capped by the number of units
issued to that CAA. With averaging, reporting of harvesting
emissions is not required, so fewer CAAs are needed.
Benefit:
This change will align the Act with policy intent and
remove unintended losses for participants.
20 Sections 190 and 191 for the CCRA limit the number of units that need
to be repaid for a carbon accounting area (or part thereof) to the number
received for that CCA.
Consultation Questions:
48. Do you agree with the proposal to allow
reconfiguration of carbon accounting
areas (CAAs) without participant cost?
If you disagree could you please provide
the reasons why? If there are other
options you think we should consider
please list them.
4.Timing of deforestation
We propose extending section 181 of the CCRA to
any pre-1990 forest land owner who clears the land,
but doesn’t make the decision to deforest until later.
Context:
Section 181 also provides for cases where pre-1990 forest
land is cleared by one owner, then transferred to a new
owner who wishes to convert it to another land use.
In these cases the new land owner is treated as
deforesting on the date of the first action on the land that
is inconsistent with it remaining forest land, following the
land transfer date.
Section 18121 in the CCRA treats pre-1990 forest land
as deforested on “the date it is cleared as part of the
deforestation process.” So, once the land is cleared, the
owner must notify Te Uru Rākau within 20 working days
and submit an emissions return in the first quarter of the
next calendar year.
However, the current wording in Section181 doesn’t fit
well with situations where a pre-1990 forest land owner
clears the forest land, leaves it as “temporarily un-stocked
forest land” for several years22, then decides to convert
it to another land use. The deforestation decision is not
made at the time that the land is cleared.
Benefit:
Current drafting results in a lack of clarity and potential
costs to participants, and places an unnecessary
enforcement burden on Te Uru Rākau. The amendment
will allow pre-1990 forest land owners the option to
change their land use within four years without being
considered non-compliant.
21 http://www.legislation.govt.nz/act/public/2002/0040/latest/DLM1662767.html
22 Forest land that is harvested or otherwise cleared is treated as deforested
if not re-established in forest within a 4, 10 or 20 year timeframe.
Consultation Questions:
49. Do you agree with the proposed change
regarding timing of deforestation? If you
disagree could you please provide the
reasons why? If there are other options
you think we should consider please list
them.
ETS Forestry Consultation 49
5. Emissions returns for post-1989 Benefit:
forest land with mixed ages Removing this unnecessary compliance cost will
reduce costs for participants and Te Uru Rākau, without
Amend the CCRA to ensure that the emissions or
undermining the integrity of the ETS.
removals from all trees in a CAA are included in an
emissions return.

Context:
If a CAA consists of trees of more than one age with some
trees planted in the current emissions return period, the
emission return requirements determine the emissions
return period as commencing at the age of the youngest
trees in the CAA23. As a result the carbon contribution of
older trees in the CAA is unintentionally excluded.
Benefit:
To help ensure all emissions and removals are accounted
for when a carbon accounting area is registered.
Consultation Questions:
50. Do you agree with the proposal to ensure all
emissions or removals from all trees in a CAA
are included in an emissions return? If you
disagree could you please provide the reasons
why? If there are other options you think we
should consider please list them.
6. Emissions returns for natural
disturbance events
Exempt participants faced with a natural
disturbance that permanently prevents re-
establishment of forest from needing to fill out an
emissions return when they remove the land under
section 191 24.
Context:
Post-1989 forestry participants with forest land affected
by a natural disturbance event that permanently stops the
forest being re-established (such as river or sea erosion)
must submit an emissions return, even though they
aren’t obligated to surrender any units. This is considered
unnecessary compliance.
Note, this proposal is different to the adverse events
proposal in this discussion document on page 24. That
proposal relates to the short term loss of carbon where a
forest is re-established. Whereas, this proposal relates to
those areas where a forest is unable to be re-established.
Consultation Questions:
51. Do you agree with the proposal to change
emissions returns for natural disturbance
events that permanently prevents forest re-
establishment? If you disagree could you
please provide the reasons why? If there
are other options you think we should
consider please list them.
7 Removing unnecessary emissions
return requirements
Amend section 179A to explicitly note the exemption
from the notification and emission return
requirements of section 56 and 65 of the CCRA.
Context:
It is unclear in the CCRA whether forest land with an
approved offsetting application is also exempt from
obligations to notify and submit an emissions return for
a deforestation activity. Technically the participant may
be required to pay for the deforestation twice, through
meeting the criteria for two separate activities that require
a mandatory emissions return.
Benefit:
Lower compliance costs and more clarity around the
requirements for participants.
Consultation Questions:
52. Do you agree with the proposed change
to remove unnecessary emissions return
requirements? If you disagree could you
please provide the reasons why? If there
are other options you think we should
consider please list them.

23 Other conditions apply if the CAA was constituted following removal of

land from a CAA or a transmission of interest; or if an s189 (4A) return was
submitted.
24 http://www.legislation.govt.nz/act/public/2002/0040/latest/DLM1662790.html
50 Te Uru Rākau
8. Excluding post-1989 forest land with
tree weeds
Either
Amend the relevant section to exclude from the ETS all
tree weed land registered after 2012;
Or
Amend the relevant section to exclude from the ETS all
future registrations of tree weed land, or areas which
become tree weeds, regardless of who applies to register.
Context:
Section 187(5) was added to the CCRA in 2012 with
the intention of excluding tree weed land from being
registered in the ETS. But to avoid making an amendment
that had retrospective application, participants who
had registered land containing tree weeds before this
amendment were excluded. The problem is that those
existing participants are able to add more land containing
tree weeds. Currently, approximately five ETS participants
are in this situation, but most have deregistered their tree
weeds.
Benefit:
Improve the integrity of the ETS to meet its policy and
environmental intent.
Consultation Questions:
53. Which of the two proposed options to
exclude post-1989 forest land with tree
weeds do you prefer? Could you please
provide your reasons why?
54. Do you currently have any tree weeds
registered?
Consultation Questions:
56. Do you agree with the proposed
change for deregistration of forestry
participants? If you disagree could
you please provide the reasons why?
If there are other options you think
we should consider please list them.
9. Allowing the EPA to review its
decisions
Amend the CCRA to allow the EPA to reconsider,
revoke or replace a decision that is deemed
incorrect, provided that the affected person is be
consulted before amending a decision. The affected
person, if dissatisfied with an amended decision, has
existing rights of review under sections 144-146.
Context:
The EPA cannot initiate a review of their own decision, if
it appears a mistake has been made, which may lead to
it being unnecessarily disregarded. There is a precedent
in the CCRA where the Minister has the power to review
allocation plan decisions25.
Benefit:
To reduce the complexity and cost of correcting decisions
by the EPA.
Consultation Questions:
55. Do you agree with the proposal to allow the
EPA to review its decisions? If you disagree
could you please provide the reasons why? If
there are other options you think we should
consider please list them.
10. Deregistering forestry participants
who cease to be legal entities or are
persistently non-compliant
Allow the EPA explicit ability to deregister ETS
participants and close their holding accounts if
they cease to be legal entities or are persistently in
breach of their obligations.
Context:
If post-1989 participants cease to be legal entities (such
as where a company or partnership is wound up), the
EPA is unable to deregister them, or close their holding
accounts.
Some forestry ETS participants have been in breach of
their obligations even after they have been penalised. For
example approximately 200 post-1989 participants still
have not submitted a mandatory return, or approximately
55 pre-1990 forest owners have not notified us they have
ceased deforesting. We propose to enable the EPA to
deregistered persistent non-compliers from the ETS
activity.
Benefit:
Ensuring this function is included in the current
legislation, and reducing participant non-compliance.
25 http://www.legislation.govt.nz/act/public/2002/0040/latest/DLM1662640.html
ETS Forestry Consultation 51
11. New rounding rules
Specify rounding rules in sections 190 and 191 that
are consistent with the rounding rules in the forestry
sector regulations.
Context:
Rounding rules for unit calculations are unclear when
removing land from a CAA or repaying units from an
offsetting land application. Participants are unsure
whether to round up or round down when surrendering or
repaying units in these situations.
Benefit:
Reduces confusion faced by participants about rounding
rules.
Consultation Questions:
57. Do you agree with the proposed change to
rounding rules? If you disagree could you
please provide the reasons why? If there
are other options you think we should
consider please list them.
12. More flexibility in submitting
mandatory emission returns
The proposal is to allow persons who have
submitted a transmission of interest notification
(i.e. either the transferee or transferor) to submit a
mandatory emission return.
Context:
Currently only the registered post-1989 forestry
participant can submit the mandatory emissions return
due at the end of each five-year period. Situations can
arise where an ETS transmission of interest process
hasn’t been fully completed by the last date for submitting
the return. However, the transferor (who would be
responsible for submitting the return) will no longer hold
an interest in this land, and may be unwilling to undertake
a return with no benefit to themselves.
Benefit:
Transferors may no longer exist or be willing to undertake
an emissions return for land that they are transferring.
Allowing the transferee to undertake this responsibility
will mean the interested entity can submit the return.
Consultation Questions:
58. Do you agree with the proposal to allow more
flexibility in submitting emissions returns? If you
disagree could you please provide the reasons why?
If there are other options you think we should
consider
52 Te Uru Rākau please also list them.
13. Standardise timeframes for unit
surrenders and payments
It is proposed to standardise the timeframe for
surrendering/repaying units to 60 working days from
the date on which a notice is sent to a participant.
Context:
Timeframes for surrendering or repaying units to the
Crown range from 20 to 60 working days, depending on
the scenario and type of emissions return that resulted
in the surrender/repayment. Also timeframes for
different transactions may be calculated from the date
of submission, approval, or the date on which a notice is
sent to a participant. This is unnecessarily complex for
participants.
Benefit:
To reduce complexity in the ETS, and make compliance
simpler for participants, the EPA and Te Uru Rākau.
Consultation Questions:
59. Do you agree with the proposal to
standardise timeframes for unit surrenders
and payments? If you disagree could you
please provide the reasons why? If there are
other options you think we should consider
please also list them.
14. Require all returns to be “net”
returns
It is proposed that participants’ unit entitlements are
made net of any unit surrender obligations that that
participant may have.
Context:
Currently participants can claim units, even if they owe
and have not surrendered units for emissions from other
parts of their forest. Making returns “net” would resolve
this issue, and would reduce the number of transactions
that the EPA or Te Uru Rākau must manage.
Benefit:
To simplify unit transactions for participants, the EPA and
Te Uru Rākau.
Consultation Questions:
60. Do you agree with the proposal to require
all returns to be net returns? If you disagree
could you please provide the reasons why? If
there are other options you think we should
consider please also list them.
15. Transfer of participation when
forestry rights are granted
Make the transfer of participation optional when
a land owner participant grants a forestry right or
lease.
Context:
Post-1989 participants may want to grant a forestry right
(e.g. as a mechanism to sell a cutting right to another
party when the trees are close to harvest), but remain
as the ETS participant. Currently when a forestry right
or lease is granted, the ETS participation automatically
transfers to the holder of the forestry right or lease. This
automatic transfer may not suit either the current ETS
participant or the forestry right/lease holder.
Benefit:
Corrects an unanticipated outcome, and provides more
flexibility for participants.
Consultation Questions:
61. Do you agree with the proposed change
regarding the transfer of participation when
forestry rights are granted? If you disagree
could you please provide the reasons why?
If there are other options you think we
should consider please also list them.
16. Planted and naturally regenerated
native forest on cleared forest land
Amend the criteria so that they cover cases
where cleared land is re-established in forest by
a combination of planting trees and the natural
regeneration of trees.
Context:
When forest land is cleared, it is treated as deforested
unless it is re-established in forest within the timeframes
specified in Section 179 of the CCRA. However, these
criteria don’t cover cases where the land is reforested by a
combination of tree planting and natural regeneration. For
example when tree weeds are cleared some land owners
undertake restoration planting of native trees within a
regenerating landscape. If this follows best ecological
practice, it is likely to use a facilitated regeneration
model which relies on the combination of planting and
regenerating species.
Benefit:
Corrects an unanticipated outcome, and provides more
flexibility for participants.
Consultation Questions:
62. Do you agree with the proposed change
to cover cases where cleared land is re-
established in forest by both planting and
natural regeneration? If you disagree could
you please provide the reasons why? If
there are other options you think we should
consider please also list them.
ETS Forestry Consultation 53
 17. Exempt land eligible as post-1989
forest land
It is proposed to amend the CCRA so deforested
exempt land that becomes forest land nine years
or more after being deforested is considered to be
post-1989 forest land.

Context:
In the ETS, pre-1990 forest land is declared exempt
land if a “less than 50-hectare” or tree weed exemption
is granted. In these cases, the Crown absorbs the cost
of deforestation emissions because the benefits are
considered to be greater than the costs.

Under the international accounting rules, New Zealand

must account for carbon stock changes on deforested
land that is reforested again i.e. it is treated the same as
post-1989 forest land.

But in the ETS, if exempt land is to be eligible to be

registered as post-1989 forest land, the land owner must
surrender NZUs for that land as if it was not exempt.
This requirement was included to prevent pre-1990
forest land owners from using the exemption process
to convert pre-1990 to post-1989 forest land. At around
$16,000 per hectare, this acts as a significant barrier to
future afforestation (particularly after a change in land
ownership) and best practice farm management.

Benefit:
This would better align the ETS treatment with
international accounting, and increase the afforestation
incentive for land owners, including farmers.

Consultation Questions:
63. Do you agree with the proposal that
deforested exempt land is considered
post-1989 forest land if it becomes forest
land again nine years or more after being
deforested? If you disagree could you
please provide the reasons why?
64. As above, do you agree with the stand-
down period of nine years or more? If not,
what period do you think should be used?

54 Te Uru Rākau
9. What Happens Next?
HAVE YOUR SAY • your organisation’s name (if you are submitting
Te Uru Rākau welcomes written submissions on the on behalf of an organisation, and whether your
proposals contained in this document. All submissions submission represents the whole organisation or a
must be received by Te Uru Rākau no later than 5.00pm on section of it);
Friday, 21 September 2018. • your contact details (such as phone number, address
and email).
There are three ways you can make a submission:
• Submissions should be sent directly to
SUBMISSIONS ARE PUBLIC INFORMATION
etsconsultation@mfe.govt.nz
Please note that your submission is public information.
• You can also submit online through our website:
Submissions may be the subject of requests for
www.mfe.govt.nz/consultation/ets
information under the Official Information Act 1982. The
• You can mail hard copies of your submission to:
Official Information Act specifies that information is to be
ETS Consultation
made available to requesters unless there are sufficient
Ministry for the Environment
grounds for withholding it, as set out in the Official
PO Box 10362
Information Act. Submitters may wish to indicate grounds
Wellington 6143
for withholding specific information contained in their
New Zealand
submission, such as if the information is commercially
Please ensure if you mail your submission that it arrives sensitive or if they wish personal information to be
by close of business at 5.00pm on Friday, 21 September withheld. Te Uru Rākau will take such indications into
2018. account when determining whether or not to release
information.
We will consider all relevant material in submissions, so
you are welcome to provide information supporting your
WHERE TO FIND FURTHER INFORMATION
comments. Please make sure you include the following in
Please go to www.mfe.govt.nz/consultation/ets to find
your submission:
further information, register for information sessions and
• the title of the consultation document;
make a submission.
• your name and title;
 

ETS Forestry Consultation 55

10. Glossary of Terms
Forests that have grown beyond their average crediting age on their first rotation.
Above the average During further growth and subsequent rotations, the forest will be considered ‘above the
average’.
In the ETS this refers to the counting of carbon stored in registered forests from their
forest growth, and the amount emitted upon harvest or deforestation. This is equated
Accounting
into emissions units that are allocated to participants for forest growth, and required to
be paid when emitting.
In the ETS this refers to the method used to count and report our greenhouse gas
emissions both domestically and internationally. The method used determines what
Accounting approach
activities and factors are considered in determining the domestic counting and the
international reporting of New Zealand’s emissions increases/reductions.
A natural event that either temporarily or permanently disrupts the growth of a forest by
Adverse events removing all or part of the trees in an area. Examples include wind throw, earthquakes,
floods and landslides.
The establishment of forest on land that did not previously have tree cover, and will
Afforestation
therefore be considered ‘new forest’ (see definition for new forest).
A range of harvest rotation ages for a forest types, where all the forests within that range
will be allocated the same long term average carbon stock age. For example radiata pine
Age band
forests that are harvested between ages 25 and 34 will be allocated the same ‘average
age’.
The Crown gives emissions units to ETS participants who are eligible to receive units
for their activities. For example an eligible forest owner who is registered in the ETS
Allocation
will receive be allocated emissions units from the Government in accordance with their
forest growth.
The age at which a forest is deemed to have reached its long term average carbon stock
Average age
for five or more rotations.
The age to which a registered forest in the ETS will be able to earn emissions units up to
Average crediting age
for forest growth on its first rotation under the averaging accounting method.
The averaging accounting method allocates emissions units to participants that reflect
the amount of carbon stored in their forest over the long term (five rotations or more)
Averaging and no longer requires repayment of emissions units on harvest. Once the forest reaches
a carbon storage volume that is the equivalent to its long term average, unit payments
would cease.
Forests that have not yet grown to their average crediting age on their first rotation.
Below the average While the forest growth is under this age, it is considered ‘below the average’. It will
continue to earn emissions units for growth until it reaches its average age.
CAA means an area of post-1989 forest land that—

(a) is defined by a person who is registered or has applied to register as a participant

Carbon Accounting Area under section 57 in relation to an activity listed in Part 1 of Schedule 4; and
(CAA) (b) meets any relevant criteria specified in regulations made under this Act; or

(c) is constituted as a carbon accounting area by operation of section 188(7)(b) or 192(3)

(b)
The cost of one emissions unit. One emissions unit represents one tonne of carbon
Carbon price
dioxide equivalent.
Natural and artificial processes which take carbon dioxide from the atmosphere and
Carbon sink store it are known as ‘carbon sinks’. Forests are a good example of a carbon sink, as they
take in and store carbon dioxide through the process of photosynthesis.
Carbon Stock The amount of carbon that is contained within a forest.

56 Te Uru Rākau
Carbon stock change Addition or removal of carbon stock contained in a forest.

Climate Change Response A legal framework to enable New Zealand to meet its international obligations under the
Act (CCRA) 2002 United Nations Framework Convention on Climate Change and the Kyoto Protocol.
(a) Means to convert forest land to land that is not forest land; and
Deforestation
(b) Includes clearing forest land, where section 179 applies.
Deforestation liability A participant must pay back any New Zealand Units owed when deforesting in the ETS.

The reduction or removal of emissions. In forestry, this specifically regards carbon

Emissions Mitigation
sequestration, as forests act as a carbon sink.
A method used to calculate how much carbon is in post-1989 forest land (the ‘carbon
stock’) from information you collect about your forest. Participants must use the FMA if a
participant:
Field Measurement • has 100 hectares or more of post-1989 forest land registered in the ETS at any time
Approach during a mandatory emissions return period, or
• holds a covenant in the Permanent Forest Sink Initiative (PFSI) subject to the FMA,
and have a forest sink area of 100 hectares or more at any time during a mandatory
emissions return period.
(a) means an area of land of at least one hectare that has, or is likely to have, tree crown
cover from forest species of more than 30 percent in each hectare; and

(b) includes an area of land that temporarily does not meet the requirements specified in
paragraph (a) because of human intervention or natural causes but that is likely to revert
to land that meets the requirements specified in paragraph (a); but

Forest land (c) does not include—

(i) a shelter belt of forest species, where the tree crown cover has, or is likely to have, an
average width of less than 30 metres; or

(ii) an area of land where the forest species have, or are likely to have, a tree crown cover
of an average width of less than 30 metres, unless the area is contiguous with land that
meets the requirements specified in paragraph (a) or (b)
Harvest liabilities Post-1989 forests must pay back New Zealand Units when they harvest.

Harvested Wood Products Products made from timber, which act as a store of carbon.
(HWP)
Harvesting restrictions A participant is restricted from harvesting their forest within specified legal parameters.

If a land owner is a post-1989 forestry participant, the holder of a forestry right, or a

lease holder over the land is considered to be an interested party under the CCRA.
Interested party
Similarly, if a forestry right or lease holder is the participant, then the land owner is an
interested party.
In this context, liability means the requirement to surrender or repay New Zealand Units
Liability
under the ETS.
Long term average The age at which a forest will have stored its long term average carbon stock.

The balance of the units received and the units that need to be surrendered when the
forest is harvested. E.g. an area of forest which has received 700 NZU, but will have a
Low risk units
harvest liability of 600NZU could be said to have 100NZU of low risk units. Low risk units
are occasionally referred to as ‘safe carbon.’
All ETS participants are required to calculate carbon stock change for the Mandatory
Mandatory Emissions Emissions Return Period (MERP), notwithstanding participants who have previously
Return submitted Voluntary Emissions Returns. Completed return forms must be submitted to
MPI within six months of the end of a mandatory return period.

ETS Forestry Consultation 57

 Any of the following periods:
(a) the first commitment period:

Mandatory Emissions (b) any subsequent commitment period or, if there is no subsequent commitment
Return Period (MERP) period,—

(i) the five-year period commencing on 1 January 2013:

(ii) each subsequent five-year period after the period specified in subparagraph (i)
A shorter Mandatory Emissions Return Period (see 91 and 92).
Mini-MERP
A Mini-MERP is one of the operational changes proposed.
How a country states its target under the Paris Agreement on Climate Change. The
Nationally Determined
individually determined contributions that each specific country should make in order to
Contribution (NDC)
reduce national greenhouse gas emissions and adapt to the impacts of climate change
New forest This refers to forests planted on currently un-forested land from 1 January 2020

New Zealand Unit (NZUs) A unit issued by the Registrar and designated as a New Zealand unit

Under section 186B of the CCRA, unstocked land that the EPA has approved as offsetting
Pre-1990 forest Offsetting
forest land can be established in forest instead of paying NZUs for the deforestation
(activity)
liability of an equivalent area of pre 1990 land that an applicant intends to deforest.
In this context, it refers to a person, persons or entity that:
• participates in a forestry activity; or
• carries out an activity covered by the ETS/PFSI.
Participant
A Participant must report on emissions (or on carbon captured) and may need to
surrender units to cover their emissions or may receive an entitlement of units for
carbon capture.
Permanent forest A forest which will not be clear-fell harvested.

A forest in the PFSI enters into a covenant with the Crown, which is registered
against their land title(s). The covenant is in perpetuity, with the right to terminate
Permanent Forest Sink
after a minimum term of 50 years. Land owners are responsible for establishing and
Initiative (PFSI)
maintaining the forest. Limited harvesting is allowed on a continuous cover forestry
basis. Currently administered under the Forest Act 1949.
A proposed new activity in the Climate Change Response Act 2002 (CCRA). The key
features of this proposal are:
• the forest must remain as forest land for 50 years, and cannot be clear fell harvested,
Permanent post-1989 or otherwise completely cleared, within this time frame (effectively a 50 year limit on
clear fell harvest);
• Continuous canopy, or selective, harvest will be allowed in the permanent post-1989
activity provide the forest is not clear felled.
Post-1989 forest land is land which meets the forest land criteria, and:
• was not forest land on 31 December 1989; or
• was forest land on 31 December 1989 but was deforested between 1 January 1990
Post-1989
and 31 December 2007; or
• was pre-1990 forest land that was deforested on or after 1 January 2008, and any ETS
liability has been paid.
Pre-1990 forest land:
• was forest land on 31 December 1989; remained as forest land on 31 December 2007;
and
Pre-1990
• contained predominantly exotic forest species on 31 December 2007.
• Land that was indigenous forest land on 31 December 1989, and remained so on 31
December 2007, is not pre-1990 forest land and is not subject to ETS obligations.
In this context it refers to the payment of NZUs back to the Crown when the carbon stock
Repay
of your forest has decreased.
Register In this context; enter an area of eligible forest land into the ETS.

58 Te Uru Rākau
Rotation The cycle of growth and felling or cutting of trees.

The growth period elapsed between the establishment of the forest and the felling or
Rotation age
cutting of the same forest
A specified age period (e.g. between 30 and 35 years) within which participants would
Rotation age band
need to harvest their forest
Slash Any tree waste left behind after plantation forestry activities.

Status quo The current approach or method used.

The transfer of one or more units to the Crown surrender account in the Register to
Surrender
meet an emissions obligation.
In this context, this refers to forest land that has been cleared (e.g. harvest) but is
Temporarily un-stocked
expected to revert (e.g. be replanted or regenerate) to forest within the timelines of the
forest land
CCRA.
The Act Refers to the Climate Change Response Act 2002.

A participant either transfers land to a new participant, enters into a contract where the
Transmission of interest contract holder is the new participant, or a contract is terminated and the land owner or
new contract holder is the participant.
A tree that is defined or designated as—

Tree weed (a) a pest in a pest management strategy under the Biosecurity Act 1993; or

(b) a tree weed in regulations made under this Act.

Units
Yield tables/default tables
This means a Kyoto unit, a New Zealand Unit (NZU) or an approved overseas unit.
Currently the ETS only transacts NZUs.
Pre-calculated values of carbon stock in forests, categorised by forest type, age and,
for Pinus radiata, region. The values express the amount of the carbon dioxide removed
from the atmosphere and stored in the forest, as well as the carbon that would be
released back into the atmosphere due to harvesting. The values are expressed in
tonnes of carbon dioxide per hectare.

ETS Forestry Consultation 59

60 Te Uru Rākau
ETS Forestry Consultation 61
Te Uru Rākau
PO Box 2526
Wellington 6140
New Zealand
0800 00 83 33
www.mpi.govt.nz